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 agoRelated Solutions
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