ModeldrillInterest on the opening debt balance
A financial modeling exercise from Modeldrill. Solve it with a live spreadsheet grid in your browser, with Fill right and Fill down, and it is checked the moment you submit.
The task
A term loan is repaid in equal amounts. Fill the opening balance for later years (row 5), the closing balance (row 7) and interest expense (row 8), charging the rate in B2 on the opening balance of each year.
What this exercise teaches
Charging interest on the average of opening and closing debt is more precise, but when the closing balance depends on cash after interest it creates a circular reference. Using the opening balance avoids the loop and stays close for steady repayments.
A hint if you get stuck
Interest uses the balance the year starts with, row 5, times the locked rate.
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