Question

Hayley makes annual end-of-year payments of $6,260.96 on a five-year loan with an 8 percent interest rate. The original principal amount was O A 531,000 OB. $30,000 O C. $20,000 OD. $25,000

Answer 1

The formula to calculate principal amount is given below:

$Principal\, amount=Annual\, payment\times \left ( \frac{1-\left ( 1+i \right )^{-n}}{i} \right )$

Principal amount = 6, 260.96 x (1 - (1+0.08) 0.08

$Principal\, amount=6,260.96\times \left ( \frac{1-0.680583197}{0.08} \right )$

$Principal\, amount=6,260.96\times \left ( \frac{0.319416803}{0.08} \right )$

Principal amount = 6,260.96 X 3.993

The correct option is "D".