Question

1A) Construct a loan amortization schedule for a 15 year, 7.75% loan of $10,000,000. The loan requires equal, end-of-year paymens, and interest compounded monthly.

b) what is the total amount of interest paid over the life of the loan?

c) Assume that there is a balloon payment requirment after 10 years. What is the balloon payment in section a?

Answer 1

Interest rate = 7.75% Compounded monthly.

So, Effective annual rate = [(1 + 7.75% / 12) ^ 12] - 1

= 1.0803 - 1

= 8.03%

Effective annual rate is 8.03%.

Now Loan amortization scedule is calculated in excel and screen shot provided below:

Annual Payment on Loan is $1,170,529.20.

b.

total amount of interest paid over the life of the loan is $7,557,937.99.

c.

Outstanding balance at end of year 10 is $4,669,730.78. So, if there is a balloon payment requirment after 10 years then value of balloon payment is $4,669,730.78.