Question

In: Finance

You have just taken out an amortized loan for $404,000. Assume that the loan will be...

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

Solutions

Expert Solution

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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