Answer the questions below. Show all work. Loan Amount: $10,000,000.00 Interest Rate: 6-3/4% Amortization: ...

Answer the questions below. Show all work.

Loan Amount: $10,000,000.00

Interest Rate: 6-3/4%

Amortization: 30 years

Term: 10 years

Assume the above loan is interest only for the first three (3) years.

What is the Annual Debt Service (ADS) in the first year?

How much interest (cumulative) will have been paid at the end of year 3?

How much principal will be due at maturity?

How much interest will have been paid over the 10 year term?

Solutions

Expert Solution

Thanks for the question. Hope you find the solution helpful!!

Interest only rate per month = 0.5625 % (6.75%/12 as there are 12 periods in a year)

For the first 36 months (3 years), interest only payment = $56250 (0.5625 % of $10,000,000)

For the remaining 324 months (27 years), the amortized payment will be = $67160.06 (it comes from the amortization chart)

1. Annual Debt Service (ADS) in the first year = $675000 (interest only monthly payment * 12)

2. Interest (cumulative) will have been paid at the end of year 3 = $2025000 (ADS for the first year * 3)

Note: ADS for the first 3 years is the same as interest payment during the same period as it is an interest only loan for the first 3 year.

3. Principal will be due at maturity (term period) = $8849998.57 (value comes from the amortization chart)

4. Interest will have been paid over the 10 year term = $6499064.79 (value comes from the amortization chart)

jeff jeffy answered 1 year ago

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