Question

In: Finance

Problem 4-30 Loan Amortization Your company is planning to borrow $2 million on a 5-year, 8%,...

Problem 4-30
Loan Amortization

Your company is planning to borrow $2 million on a 5-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.

%

Expert Solution

The formula for calculating the payment amount is shown below:

A = P * (r * (1 + r)ⁿ / (1 + r)ⁿ - 1)

where, A is the annual amount. P is the initial loan amount = $2000000, r is the rate of interest = 8% = 0.08 and n is the time period = 5 years

Now, putting these values in the above formula, we get,

A = $2000000 * (0.08 (1 + 0.08)⁵ / (1 + 0.08)⁵ - 1)

A = $200000 * (0.08 (1.08)⁵ / (1.08)⁵ - 1)

A = $200000 * (0.08 *1.4693280768) / (1.4693280768 - 1)

A = $200000 * (0.11754624614 / 0.4693280768)

A = $200000 * 0.25045645456

A = $500912.91

So, the annual payments will be of $500912.91

Loan amortization schedule:

1st year:

Total payment = $500912.91

Interest = $2000000 * 8% = $160000

Principal repayment = $500912.91- $160000 = $340912.91

Outstanding principal = $200000 - $340912.91 = $1659087.09

2nd year:

Total payment = $500912.91

Interest = $1659087.09 * 8% = $132726.9672

Principal repayment = $500912.91 - $132726.9672 = $368185.94

So, at the end of 2nd year, out of total $500912.91 payment made, $368185.94 is the principal repayment.

jeff jeffy answered 1 year ago

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!

Your company is planning to borrow $1.25 million on a 5-year, 14%, annual payment, fully amortized...

Your company is planning to borrow $1.25 million on a 5-year, 14%, annual payment, fully amortized term loan. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. What fraction of the payment made at the end of the second year will represent repayment of principal? Do not round intermediate calculations. Round your answer to two decimal places.

Your company is planning to borrow $1.75 million on a 5-year, 11%, annual payment, fully amortized...

Your company is planning to borrow $1.75 million on a 5-year, 11%, 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.

Your company is planning to borrow $3 million on a 5-year, 10%, annual payment, fully amortized...

Your company is planning to borrow $3 million on a 5-year, 10%, annual payment, fully amortized term loan. What fraction of the payment made at the end of the second year will represent repayment of principal? Do not round intermediate calculations. Round your answer to two decimal places

Your company is planning to borrow $3 million on a 5-year, 13%, annual payment, fully amortized...

Your company is planning to borrow $3 million on a 5-year, 13%, annual payment, fully amortized term loan. What fraction of the payment made at the end of the second year will represent repayment of principal? Do not round intermediate calculations. Round your answer to two decimal places.

Your company is planning to borrow $1.75 million on a 5-year, 12%, annual payment, fully amortized...

Your company is planning to borrow $1.75 million on a 5-year, 12%, annual payment, fully amortized term loan. The data has been collected in the Microsoft Excel Online file below. Open the spreadsheet and perform the required analysis to answer the question below. Loan amount $1,750,000 Term in years 5 Annual coupon rate 12.00% Calculation of Loan Payment Formula Loan payment = #N/A Loan Amortization Schedule Year Beginning Balance Payment Interest Principal Ending Balance 1 2 3 4 5 Formulas...

Complete the first 4 months of an amortization table for the 30 year loan. Include payment...

Complete the first 4 months of an amortization table for the 30 year loan. Include payment number, amount applied to interest, amount applied to principal, balance, and equity (%) as columns in your table. Repeat for the 15 year loan given in the same exercises.

Your company is planning to borrow $1.5 million on a 3-year, 10%, annual payment, fully amortized...

Your company is planning to borrow $1.5 million on a 3-year, 10%, 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.

Your company is planning to borrow $1.5 million on a 9-year, 14%, annual payment, fully amortized...

Your company is planning to borrow $1.5 million on a 9-year, 14%, 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.

Your company is planning to borrow $0.75 million on a 9-year, 9%, annual payment, fully amortized...

Your company is planning to borrow $0.75 million on a 9-year, 9%, 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.