Question

In: Finance

Recently, your company borrows $2,000,000 initially from the bank for a new project. You are planning...

Recently, your company borrows $2,000,000 initially from the bank for a new project. You are planning to repay it in 33 equal annual year-end payments. If the interest rate is 8%, what is the remaining loan balance after 5 years?

Solutions

Expert Solution

First of all lets find equal annual year-end payments

Equal annual year-end payments = Loan amount/PVIFA(r%,n)

r = rate of interest = 8%

n = no of years = 33 years

PVIFA(r%,n) = [1-(1/(1+r)^n / r ]

PVIFA(8%,33) =[1-(1/(1+8%)^33 / 8%]

=[1-(1/(1+0.08)^33 / 0.08]

=[1-(1/(1.08)^33 / 0.08]

=[1-0.078888 / 0.08]

=0.921111/0.08

=11.5134

Thus Equal annual year-end payments = 2000000/11.5134

=173703.26 $

Statement showing amortization schedule

Towards
Year Opening balance Installments Interest @ 8% Principal Payment Closing balance
A B C = A x 8% D = B - C E = A- D
1 2000000.00 173703.26 160000.00 13703.26 1986296.74
2 1986296.74 173703.26 158903.74 14799.52 1971497.22
3 1971497.22 173703.26 157719.78 15983.48 1955513.74
4 1955513.74 173703.26 156441.10 17262.16 1938251.58
5 1938251.58 173703.26 155060.13 18643.13 1919608.44


Thus after 5 years remaining loan balance = 1919608.44 $

jeff jeffy answered 1 year ago
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