What will be the amount of interest paid in the tenth month of a $250,000, 4.5...

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What will be the amount of interest paid in the tenth month of a $250,000, 4.5...

What will be the amount of interest paid in the tenth month of a $250,000, 4.5 percent, 30 year loan?

a. 926 b.764 c. 857 d. 1012

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Answer 1

Answer #1

Compute the monthly interest rate, using the equation as shown below:

Monthly rate = Annual rate/ 12 months

= 4.5%/ 12 months

= 0.375%

Hence, the monthly rate of interest is 0.375%.

Compute the PVIFA at 0.375% and 360 payments, using the equation as shown below:

PVIFA = {1 – (1 + Rate)^{-Number
of periods}}/ Rate

= {1 – (1 + 0.00375)^-360}/ 0.375%

= 197.3612

Hence, the PVIFA at 0.375% and 360 payments is 197.3612

Compute the monthly loan payment, using the equation as shown below:

Monthly payment = Loan amount/ PVIFA_{0.375%, 360}

= $250,000/ 197.3612

= $1,266.71

Hence, the monthly loan payment is $1,266.71.

Compute the amount of interest paid in 10^th month, using MS-excel as shown below:

В Е 3 Amortization Table 4 Month Opening Loan balance Interest (0.375% per month) Monthly Payment Closing Loan Balance 5 1 6

The result of the above excel table is as follows:

В Е F 3 Amortization Table 4 Month Opening Loan balance Interest (0.375% per month) Monthly Payment Closing Loan Balance $ 24

Hence, the amount of interest paid in the 10^th month is $926.

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Answer 2

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