Your company has just taken out a 1-year installment loan for $82,500 at a nominal rate of 12.0% but with equal end-of-month payments. What percentage of the 2nd monthly payment will go toward the repayment of principal?

Question

Kaley Lester

Business

2 January, 15:56

Your company has just taken out a 1-year installment loan for $82,500 at a nominal rate of 12.0% but with equal end-of-month payments. What percentage of the 2nd monthly payment will go toward the repayment of principal?

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Answers (1)

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Fitzgerald · Answer 1

89.63% of 2nd month payment will go towards the payment of principal.

Explanation:

Loan Payament per month = r (PV) / 1 - (1 + r) ^-n

r = rate per period = 12% per year = 1% per month

n = number months = 12 months

PV = present value of all payments = $82,500

P = payment per month = ?

P = 1% ($82,500) / 1 - (1 + 1%) ^-12

P = $7,330 per month

Month Payments Principal Interest Balance

1 - 7330 - 6505 - 825 75995

2 - 7330 - 6570 - 760 69,425

Percentage of Principal Payment = Principal payment / totla monthly payment = $6,570 / $7,330 = 0.8963 = 89.63%