In: Finance
You have just taken out an amortized loan for $404,000. Assume that the loan will be paid in 24 equal monthly installments of
$18,345.62 and that the first payment will be due 1 month from today. How much of your third monthly payment will go toward the repayment of principal? Fill in the worksheet below.
Month |
Interest Owing at End of Month ($) |
Principal Repayment ($) |
Principal Owing at End of Month ($) |
1 |
|||
2 |
|||
3 |
Solution
Here we have principal = 404000
Time= 24 months
EMI= 18345.62
Using the PV of annuity formula we can calculate the rate of interest
PV of annuity= Annuity*[1-(1/(1+r)^n)]/(r/12)
PV of the annuity is the principal amount
r= rate of interest
Putting the values
404000= 18345.62*[1-(1/(1+r)^24)]/(r/12)
Solving we get
r=.084
=8.4%
Now using this r we get the below sheet
Excel formula
The excel format as asked is given below
Month | Monthly Interest owning at the end of month | Principal repayment | Principal owning at the end of month |
1 | 2828 | 15517.62 | 388482.38 |
2 | 2719.37666 | 15626.24334 | 372856.1367 |
3 | 2609.992957 | 15735.62704 | 357120.5096 |
Thus Principal payment in the third month is 15735.62704
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