Answer:
Percentage of 2nd installment = 90%
Explanation:
Loan Amortization: A loan repayment method structured such that a series of equal periodic installments will be paid for certain number of periods to offset both the loan principal amount and the accrued interest.
The monthly installment is computed as follows:
Monthly installment= Loan amount/annuity factor
Loan amount =72,500
Annuity factor = (1 - (1+r)^(-n))/r
r -monthly rate of interest, n- number of months
r- 11%/12 = 0.916% = 0.0091667 , n = 1× 12 = 12
Annuity factor = ( 1- (1+0.0091667)^(-12))/0.0091667= 11.3149
Monthly installment = Loan amount /annuity factor
= $72,500 /11.3149= 6407.47
Monthly installment = $6407.47
Principal due in year : 72,500
Interest due in year 1 = 0.916%×72,500 664.59
Principal balance paid in year 1 = 6407.47- 664.59 = 5742.88
Interest due in year 2 = 0.916%× (72,500- 5742.88) = 641.53
Principal paid in year 2 = 6407.47- 641.53 =5765.93
Percentage of principal that goes into repayment of
principal = (principal paid in year 2 /monthly installment)× 100
(5765.93/6407.47) × 100 = 90%
Percentage of 2nd installment = 90%
