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27 October, 22:04

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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  1. 28 October, 01:12
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    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%
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