Question

A bank lends a CHF 1’000’000 loan at an annual interest rate of 4% to a customer. The loan foresees a complete linear repayment over its term of 5 years. Debt servicing is made once a year in arrear.

Calculate the installment payment and the interest payment at the end of the third year.

Answer 1

Installment Payment at the end of third year is    $ 224,627.11

Interest Payment at the end of third year is    $ 24,934.43

Step-1:Calculation of annual payment
Annual Payment	=-pmt(rate,nper,pv,fv)		Where,
	= $ 224,627.11			rate	=	4%
				nper	=	5
				pv	=	$ 1,000,000
				fv	=	0
Step-2:Calculation of loan repayment schedule
Year	Beginning Loan	Annual Payment	Interest Expense	Principal Repayment	Ending Loan Value
	a	b	c=a*4%	d=b-c	e=a-d
1	$ 10,00,000.00	$ 2,24,627.11	$ 40,000.00	$ 1,84,627.11	$ 8,15,372.89
2	$    8,15,372.89	$ 2,24,627.11	$ 32,614.92	$ 1,92,012.20	$ 6,23,360.69
3	$    6,23,360.69	$ 2,24,627.11	$ 24,934.43	$ 1,99,692.69	$ 4,23,668.00
4	$    4,23,668.00	$ 2,24,627.11	$ 16,946.72	$ 2,07,680.39	$ 2,15,987.61
5	$    2,15,987.61	$ 2,24,627.11	$   8,639.50	$ 2,15,987.61	$ 0.00
Note:
Debt servicing is made once a year in arrear.
It means payment are made at the end of year.