Question

Loan Amount:               $20,000,000.00

Interest Rate:                6-3/4%

Amortization:               30 years

Term:                           10 years

1. Assume the above loan is interest only for the first three (3) years.
   1. What is the Annual Debt Service (ADS) in the first year?
   2. How much interest (cumulative) will have been paid at the end of year 3?
   3. How much principal will be due at maturity?
   4. How much interest will have been paid over the 10 year term?

Answer 1

	Loan Amount	$             20,000,000
	Interest Rate	6.75%
	Annual Interest =$20M*6.75%=	$               1,350,000
Ans a	Annual Debt Service =	$               1,350,000
Ans b.	As iterest is paid back each year , the
	cumulative interest in 3 years =	$               4,050,000
Ans c.	After the initial interest only period of
	3years the Principal due will be =	$             20,000,000
	After 10 years , the Principal due will be	NIL
Ans d.	Assuming Monthly payment of Installment
	for remaining 7 years
	Monthly Interest =6.75%/12=0.5625% per month
	A= [i*P*(1+i)^n]/[(1+i)^n-1]
	A = periodical installment=??
	P=Loan amount =$20,000,000
	i= interest rate per period=0.5625% per month
	n=total no of payments=12*7=84
	A=[0.5625%*20,000,000*1.005625^84]/(1.005625^84-1)
	A=299,415.27
	So Monthly Istallment to be paid =	$            299,415.27
	Total amount payable in 84 installments	$             25,150,883
	Less Principal Amount =	$             20,000,000
	So Interest paid over 7 years =	$               5,150,883
	Interest paid over 3 years interest only period=	$               4,050,000
	So Total Interest Paid over 10 years term=	$              9,200,883