How to solve below question using BA 2 Plus calculator…
On June 30 of this year, Mega Bank granted Lang Corporation a $20 million 5-year term loan with a floating rate of 200 basis points over Treasury Bill rates, payable quarterly. The loan principal is to be repaid in equal quarterly installments over the term. If Treasury Bills are expected to yield 6% for the rest of the year, how much will Lang pay to Mega Bank in the last half of this year?
Below is the answer provided…Answer is (b) 2.780 million. I have also not understood why calculation is done for 1st and 2nd quarter when question is asking for amount paid during last half year…
Answer (B) is correct . A basis point is one-hundredth of 1%. Thus, the rate on the term loan is 8% [6% treasury bill rate + 200 basis points (2%)]. The first quarterly payment consists of principal of $1,000,000 and interest of $400,000 [($20,000,000 × 8%) × (3 ÷ 12 months)], a total of $1,400,000. The second quarterly payment consists of principal of $1,000,000 and interest of $380,000 [($20,000,000 – $1,000,000) × 8% × (3 ÷ 12?months)], a total of $1,380,000. The total payments in the second half of the year are therefore $2,780,000 ($1,400,000 + $1,380,000).