Question

In: Finance

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


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