your company is planning to borrow $100000 on a 10 year 7% annual payment, fully amortized...

your company is planning to borrow $100000 on a 10 year 7% annual payment, fully amortized term loan. What fraction of the payment made at the end of the third year will represent repayment of principal?

Solutions

Expert Solution

PV = 100000
Rate = 7%
Number of Years = 10
Periodic payment
PMT = PV/(1-(1+r)^-n)/r
PMT = 100000/(1-(1+7%)^-10)/7% = 14237.75

Following amortisation table has been created in excel

	Beginning Balance= 1000000	PMT =PMT(7%,10,-100000)	Interest part of PMT=7%*Beginning Principal	Principal part of PMT= PMT-Interest	Ending Balance= Beginning balance-Principal part of PMT
1	100000	$14,237.75	7000	$7,237.75	$92,762.25
2	$92,762.25	$14,237.75	6493.357481	$7,744.39	$85,017.86
3	$85,017.86	$14,237.75	5951.249985	$8,286.50	$76,731.36
4	$76,731.36	$14,237.75	5371.194965	$8,866.56	$67,864.80
5	$67,864.80	$14,237.75	4750.536094	$9,487.21	$58,377.59
6	$58,377.59	$14,237.75	4086.431101	$10,151.32	$48,226.27
7	$48,226.27	$14,237.75	3375.838759	$10,861.91	$37,364.36
8	$37,364.36	$14,237.75	2615.504953	$11,622.25	$25,742.11
9	$25,742.11	$14,237.75	1801.947781	$12,435.80	$13,306.31
10	$13,306.31	$14,237.75	931.4416066	$13,306.31	$0.00

Principal Part fraction = 8286.50/14237.75 = 0.5820 or 58.20%

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jeff jeffy answered 1 year ago

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