Question

Your company is planning to borrow $3 million on a 5-year, 10%, annual payment, fully amortized term loan. What fraction of the payment made at the end of the second year will represent repayment of principal? Do not round intermediate calculations. Round your answer to two decimal places

Answer 1

Date	Interest	Principal	Balance
Jan, 2020	$25,000	$38,741	$2,961,259
Feb, 2020	$24,677	$39,064	$2,922,195
Mar, 2020	$24,352	$39,390	$2,882,805
Apr, 2020	$24,023	$39,718	$2,843,088
May, 2020	$23,692	$40,049	$2,803,039
Jun, 2020	$23,359	$40,382	$2,762,656
Jul, 2020	$23,022	$40,719	$2,721,937
Aug, 2020	$22,683	$41,058	$2,680,879
Sep, 2020	$22,341	$41,400	$2,639,479
Oct, 2020	$21,996	$41,745	$2,597,733
Nov, 2020	$21,648	$42,093	$2,555,640
Dec, 2020	$21,297	$42,444	$2,513,196
2020	$278,089	$486,804	$2,513,196
Jan, 2021	$20,943	$42,798	$2,470,398
Feb, 2021	$20,587	$43,154	$2,427,243
Mar, 2021	$20,227	$43,514	$2,383,729
Apr, 2021	$19,864	$43,877	$2,339,852
May, 2021	$19,499	$44,242	$2,295,610
Jun, 2021	$19,130	$44,611	$2,250,999
Jul, 2021	$18,758	$44,983	$2,206,016
Aug, 2021	$18,383	$45,358	$2,160,659
Sep, 2021	$18,005	$45,736	$2,114,923
Oct, 2021	$17,624	$46,117	$2,068,806
Nov, 2021	$17,240	$46,501	$2,022,305
Dec, 2021	$16,853	$46,889	$1,975,417
2021	$227,114	$537,779	$1,975,417

From the above table :

Principal repayment at the end of the first year is $ 486,804

Principal repayment at the end of the second year is $ 537,779

TOTAL PRINCIPAL: 1,024,583

fraction of loan repayment: (1,024,583 / 3000000 ) X 100 = 34.15

NOTE:

calculation made using a simple excel sheet in the following manner:

• For EMI: PMT (i,n,-p)
• For principal: PPMT (i,x,n,-p)
• For interest: IPMT (i,x,n,-p)

Here ‘I’ stands for monthly rate of interest, ‘n’ for number of payments to be made (loan tenure in months), ‘p’ is principal, ‘x’ is the month for which you wish to calculate principal and interest components separately.