Please answer the following: Loan Amortization Your company is planning to borrow $1.5 million on a...

Please answer the following:

Loan Amortization

Your company is planning to borrow $1.5 million on a 7-year, 8%, annual payment, fully amortized term loan. What fraction of the payment made at the end of the second year will represent repayment of principal? Round your answer to two decimal places.

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Expert Solution



	Amount of Borrowing	1500000
	Years	7
	Rate of Interest	8%		Year	PVF @ 8%
				1	0.93
	Equated Annual Installment=	Loan Amount/Cumulated DF @8%,7 Years)		2	0.86
	Equated Annual Installment=	1500000/5.21		3	0.79
	Equated Annual Installment=	288108.6		4	0.74
				5	0.68
				6	0.63
				7	0.58
					5.21

	A	B	C=A*8%	D=B-C	A-D
Year	Opening Loan Balance	Installment Amount	Interest	Principal	Closing Loan Balance
1	1500000	288109	120000	168109	1331891
2	1331891	288109	106551	181557	1150334
3	1150334	288109	92027	196082	954252
4	954252	288109	76340	211768	742484
5	742484	288109	59399	228710	513774
6	513774	288109	41102	247007	266767
7	266767	288109	21341	266767	0
		2016760	516760	1500000


Answer	Payment towards Principal at Year 2	181557
	BreakUp of 2nd Installment:
	Installment Amount	Interest	Principal
	288109	106551	181557

ekkarill92 answered 10 months ago

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