Question

You borrow $150,000 to purchase a house. You will make annual payments over the next 10 years to repay the loan. Assuming that your interest rate is 12%, what is amount of principal remaining at the beginning of year 2(after the first payment)?

1. $132,000
2. $141,452
3. $145,500
4. $138,740

Please use financial calculator :) Thank you!

Answer 1

PVordinary Annuity

PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)]

C = Cash flow per period

i = interest rate

n = number of payments

150000= Cash Flow*((1-(1+ 12/100)^-10)/(12/100))

Cash Flow = 26547.62

PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)]

C = Cash flow per period

i = interest rate

n = number of payments

PV= 26547.62*((1-(1+ 12/100)^-9)/(12/100))

PV = 141452.35