You plan to borrow $40,000 at a 6% annual interest rate. The terms require you to amortize the loan with 7 equal end-of-year payments. How much interest would you be paying in Year 2?
Let us calculate annual payment | ||
EMI | ||
Loan Amount | $ 40,000.00 | |
Interest rate per period | 6.00% | |
Number of periods | 7 | |
EMI = [P x R x (1+R)^N]/[(1+R)^N-1] | ||
Where, | ||
EMI= Equal Monthly Payment | ||
P= Loan Amount | ||
R= Interest rate per period | ||
N= Number of periods | ||
= [ $40000x0.06 x (1+0.06)^7]/[(1+0.06)^7 -1] | ||
= [ $2400( 1.06 )^7] / [(1.06 )^7 -1 | ||
=$7165.40 | ||
Let us calculate interest for second year | ||
Year 1 opening balance | $ 40,000.00 | |
Add: Interest | $ 2,400.00 | |
Less: Payment | $ 7,165.40 | |
Closing balance at year 1 | $ 35,234.60 | |
Interest for second year | $ 2,114.08 | |
You plan to borrow $40,000 at a 6% annual interest rate. The terms require you to...
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