Migi supplies obtains 5 million bank loan at 8% interest compounded semi-annually

Finance Dec 03, 2020

Migi supplies obtains 5 million bank loan at 8% interest compounded semi-annually. The company repays the loan by paying 400,000 every 6 months. What is the outstanding principal after the 10th payment?

Expert Solution

Remaining loan balance after n th payment = PV*(1+r)^n - P[(1+r)^n-1]/r

here,

PV = original loan =>$5,000,000.

r= 8 % *6/12 =>4% =>0.04.

n= 10 payments.

P = payment =>400,000.

remaining loan balance after 10th payment = $5,000,000*(1.04)^10 - 400,000*[(1.04)^10-1]/0.04

=>7,401,221.42 - 400,000*[0.48024428/0.04]

=>7,401,221.42 - 4,802,442.8

=>$2,598,778.60..

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