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Your company borrowed a 24-month $500,000 8% fixed rate loan on June 1, 2021. The loan requires payment at the end of each month. Hint:
Your company borrowed a 24-month $500,000 8% fixed rate loan on June 1, 2021. The loan requires payment at the end of each month. Hint: It would be useful to develop an amortization schedule.
a) How much is the company's monthly payment on the loan?
b) What will be the balance on the loan at the end of May 2022?
c) How much will the company need to refinance the loan at the end of December 2022?
d) How much of the monthly payment in March 2023 will be used to repay the loan's principal?
a) How much is the company's monthly payment on the loan?
b) What will be the balance on the loan at the end of May 2022?
c) How much will the company need to refinance the loan at the end of December 2022?
d) How much of the monthly payment in March 2023 will be used to repay the loan's principal?
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To answer these questions we will need to create an amortization schedule for the loan Heres how the schedule will look Loan Amount 500000 Interest Rate 8 Loan Term 24 months a How much is the companys monthly payment on the loan To calculate the monthly payment we can use the formula for calculating the monthly payment on an amortizing loan Monthly Payment Loan Amount r 1 rn 1 rn 1 Where Loan Amount 500000 r Monthly interest rate 8 annual rate divided by 12 months n Loan term in months 24 months Lets calculate the monthly payment r 8 12 008 12 00066667 n 24 Monthly Payment 500000 00066667 1 0006666724 1 0006666724 1 Monthly Payment 2293865 Therefore the companys monthly payment on the loan is approximately 2293865 b What will be the balance on the loan at the end of May 2022 To determine the loan balance at a specific point in time we need to calculate the loan balance after each monthly payment using the amortization schedule However since we dont have the complete schedule we can estimate the balance by calculating the number of payments made by May 2022 The loan was borrowed on June 1 2021 so by May 2022 11 payments June 2021 to May 2022 would have been made To calculate the balance we can use the formula Loan Balance P 1 rn 1 rp 1 rn 1 Where P Monthly Payment r Monthly interest rate n Loan term in months p Number of payments made Lets calculate the balance P 2293865 r 00066667 n 24 p 11 Loan Balance 2293865 1 0006666724 1 0006666711 1 0006666724 1 Loan Balance 40344239 Therefore the balance on the loan at the end of May 2022 is approximately 40344239 c How much will the company ...
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Intermediate Accounting
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield.
9th Canadian Edition, Volume 2
470964731, 978-0470964736, 978-0470161012
