In: Finance
A $11,000 loan is to be repaid with 9 equal half-yearly instalments. Interest is at 7.7%p.a. compounding half-yearly Calculate the principal repaid in the fourth instalment. (use excel; answer to include cents but do not use the comma separator)
Formula A ) Exel Formula to Calculate EMI = PMT(Rate,Nper,PV,FV,Type).
in exel sheet, in we choose one cell and enter the above formula values as explained below, it will give desired answer:
means
Rate= rate of interest applicable on the loan per installment basis. here installment is half yearly and interest rate is 7.7% pa. So interest rate for half yearly is= 7.7%/2= 3.85%
Nper= total number of installements
PV= loan amount
FV= future value or cash balance at the end of last payment, which will be Zero. So here it will =0
Type= is 0 or 1- where intallemnt is due at the begning of the period type will be 1 or if installement is due at the end of period type will be 0. Here we are assuiing payment will be at the end of half year so Type =0
EMI = PMT(3.85%,9,11000,0,0)
= -1469.33
answer will be in negative because it is an outflow
Formula B: (P X R) X ((1+R)^N)/((1+R)^N-1)
Here:
P= Loan Amount
R= periodical rate of interest like in our case frequency of intallement is half yearly, it will be 3.85% (7.7%/2)
N= Number of installents
EMI = (11000*3.85%) X ((1+3.85%)^9/((1+3.85%)^9-1)
=1469.33
Table of Loan balance , payment of installment and interest during loan period
Instalment number | Principal at beginning | half year interest rate | Interest | Half yearly payment | Balance at the end of half year | Payment of Principal |
A | B | C =7.7%/2 | D= (B*C) | E (EMI) | F = B+D-E | G =E-D |
1 | 11000.00 | 3.85% | 423.50 | 1469.33 | 9,954.17 | 1045.83 |
2 | 9954.17 | 3.85% | 383.24 | 1469.33 | 8,868.08 | 1086.09 |
3 | 8868.08 | 3.85% | 341.42 | 1469.33 | 7,740.17 | 1127.91 |
4 | 7740.17 | 3.85% | 298.00 | 1469.33 | 6,568.84 | 1171.33 |
5 | 6568.84 | 3.85% | 252.90 | 1469.33 | 5,352.41 | 1216.43 |
6 | 5352.41 | 3.85% | 206.07 | 1469.33 | 4,089.15 | 1263.26 |
7 | 4089.15 | 3.85% | 157.43 | 1469.33 | 2,777.26 | 1311.90 |
8 | 2777.26 | 3.85% | 106.92 | 1469.33 | 1,414.86 | 1362.40 |
9 | 1414.86 | 3.85% | 54.47 | 1469.33 | 0.00 | 1414.86 |
EMI | ||||||
Formula A | 'PMT(Rate,NPER,PV,FV,type) | |||||
=PMT(3.85%,9,11000,0,0) | ||||||
-1469.33 | ||||||
Formula B | (P X R) X ((1+R)^N)/((1+R)^N-1) | |||||
=(11000*3.85%)*((1+3.85%)^9)/((1+3.85%)^9-1) | ||||||
1469.33 |
so as per above table in forth installment we have paid interest of $ 298 out of installment of $ 1469.33 So
Principal in forth installment= Installement minus Interest paid in installment
= 1469.33-298
= $1171.33