Answer:
Percentage of 2nd installment = 90%
Explanation:
<em>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. </em>
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%
