Question

Manufacturing company borrows 5 million euros from the bank to fight the consequences of the corona...

Manufacturing company borrows 5 million euros from the bank to fight the consequences of the corona virus. The repayment schedule is based on an annuity. The interest rate is 10% and the loan is paid back with 6 annual payments.

Question:

* What is the loan balance immediately the first loan payment is made?

please dont do it in excel
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Homework Answers

Answer #1

Assuming Loan Payments are made at the end of each year

Using Formula for Equated Annual Installment (EAI)

=

PVAF @ 10% for 6 Years is 4.355

=

= 1,148,106 Euros per year

Bifurcating Interet and Principal from the first Installment

Interest = 5 milion * 10% = 500,000 Euros

Subtracting Interest from EAI we get Principal component in EAI = 1,148,106 - 500,000 = 648,106

Loan balance immediately after the first loan payment = 5 million - 648,106

= 4,351,894 Euros

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