Suppose you borrowed $15,000 at a rate of 8.5% and must repay it in 5 equal installments at the end of each of the next 5 years. How much would you still owe at the end of the second year, after you have made the second payment? Here we use an annual compounding. Hint: Amortization loan table.
Annual payment = [P x R x (1+R)^N]/[(1+R)^N-1] | ||||
Where, | ||||
P= Loan Amount | ||||
R= Interest rate per period | ||||
N= Number of periods | ||||
= [ $15000x0.085 x (1+0.085)^5]/[(1+0.085)^5 -1] | ||||
= [ $1275( 1.085 )^5] / [(1.085 )^5 -1 | ||||
=$3806.49 | ||||
Year | Beginning Balance | Interest | Payment | Ending Balance |
a | b | c=b*8.5% | d | e=b+c-d |
1 | $ 15,000.00 | $ 1,275.00 | $ 3,806.49 | $ 12,468.51 |
2 | $ 12,468.51 | $ 1,059.82 | $ 3,806.49 | $ 9,721.84 |
3 | $ 9,721.84 | $ 826.36 | $ 3,806.49 | $ 6,741.71 |
4 | $ 6,741.71 | $ 573.05 | $ 3,806.49 | $ 3,508.27 |
Correct Answer =$9721.84 | ||||
Suppose you borrowed $15,000 at a rate of 8.5% and must repay it in 5 equal...
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