Question

MMS Corp borrows $1,650,000 today for a new building. The loan is an equal principal payment loan with an APR of 6.5% compounded monthly. Payments are due monthly and the term of the loan is 9 years.

a) The interest component of the payment due in month 16 is?

b) The payment due in month 16 is?

c)The current portion of debt in month 16 is?

Answer 1

a)

A B C D E F Year Payments Interest Principal Ending Bal. OTT $1,650,000.00 1 $20,220 $8,937.50 $11,282 $1,638,717.55 21 $20,220 $8,876.39 $11,344 $1,627,373.99 3 $20,220 $8,814.94 $11,405 $1,615,968.98 4 $20,220 $8,753.17 $11,467 $1,604,502.19 5 $20,220 $8,691.05 $11,529 $1,592,973.30| 6 $20,220 $8,628.61 $11,591 $1,581,381.95 7 $20,220 $8,565.82 $11,654|$1,569,727.82 8 $20,2201 $8,502.69 $11,717 $1,558,010.57 9 $20,220 $8,439.22 $11,781 $1,546,229.84 10 $20,220 $8,375.41 $11,845 $1,534,385.30 111 $20,2200 $8,311.25 $11,909 $1,522,476.60 $20,220 $8,246.75 $11,973 $1,510,503.40 13 $20,220 $8,181.89 $12,038 $1,498,465.35 14 $20,220 $8,116.69 $12,103 $1,486,362.08 $20,220 $8,051.13 $12,169 $1,474,193.26 $20,220 $7,985.21 $12,235 $1,461,958.53

The interest component of the payment due in month 16 is $7,985.

b)

Rate = 6.5%/12 = 0.54%
Period = 9 * 12 = 108
Principal = $1,650,000
Monthly payment =
PMT(0.54%,108,-1650000)
= $20,200

c)
Amount of loan = $1,650,000
Number of payments = 9 * 12 = 108
Equal installment amount = $1,650,000 / 108 = $15,277.77778
Current portion of debt in the month 16 = $15,277.77778 * 12
= $183,333.33 or $183,333.