Your company is planning to borrow $1.75 million on a 5-year, 12%, annual payment, fully amortized...

Your company is planning to borrow $1.75 million on a 5-year, 12%, annual payment, fully amortized term loan.

The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below.

Loan amount	$1,750,000
Term in years	5
Annual coupon rate	12.00%

Calculation of Loan Payment		Formula
Loan payment =		#N/A

Loan Amortization Schedule
Year	Beginning Balance	Payment	Interest	Principal	Ending Balance
1
2
3
4
5

Formulas
Loan Amortization Schedule
Year	Beginning Balance	Payment	Interest	Principal	Ending Balance
1	#N/A	#N/A	#N/A	#N/A	#N/A
2	#N/A	#N/A	#N/A	#N/A	#N/A
3	#N/A	#N/A	#N/A	#N/A	#N/A
4	#N/A	#N/A	#N/A	#N/A	#N/A
5	#N/A	#N/A	#N/A	#N/A	#N/A

Percentage of 2nd Year Payment Representing Repayment of Principal

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.

Solutions

Expert Solution

The complete loan amortisation schedule with formula is as shown below

Loan amount	1750000.00
Term in years	5
Annual coupon rate	12.00%

Calculation of Loan Payment		Loan amount *Interest /(1-1/(1+interest rate)^term in years)
Loan payment =		485467.03

Loan Amortization Schedule
Year	Beginning Balance	Payment	Interest	Principal Repayment	Ending Balance
1	1750000.00	485467.03	210000	275467.03	1474532.97
2	1474532.97	485467.03	176944	308523.07	1166009.89
3	1166009.89	485467.03	139921	345545.84	820464.05
4	820464.05	485467.03	98456	387011.34	433452.71
5	433452.71	485467.03	52014	433452.71	0.00

Formulas	Same as ending balance of previous year	same as loan payment calculated above	beginning balance * annual coupon rate	Payment - interest	Beginning balance - principal repayment

In the second year , out of $485467.03 paid , $308523.07 is the principal repayment i.e.

308523.07/485467.03 = 0.635518 or 63.55%

0.6355 or 63.55% of the 2nd year's payment represent principal repayment in the 2nd year

jeff jeffy answered 1 year ago

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