Question

In: Accounting

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.

Thank you!

Solutions

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

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