Reference no: EM132503677

Point 1: You are the branch manager of a local bank. Mr. Keith Miller is the manager of one of your client-firms. All business accounts of the firm are maintained at your office. Mr. Miller comes from industrial engineering and so seeks your assistance in various financial matters. Like all employees of the firm, Mr. Miller also maintains some deposit accounts with your office jointly with his wife Mrs. Shirley Miller. You value the Millers' personal and corporate business equally. The Millers are originally from the west coast.

Point 2: In your scheduled meeting with Mr. Miller today, he brings up a credit request for his firm for the purchase of some new equipment. The price of this asset is $1,000,000.00. If the $1 million loan is granted to finance the purchase of the asset @ 9% interest (compounded annually), the firm must pay the entire loan together with periodical interest in five equal annual payments.

Mr. Miller wants to ascertain the following from you:

Question 1: What is the size of the required annual payment for the loan? (What will be the payment in each period?)

Question 2: When the firm makes the first payment, how much of it goes towards reduction of the principal?