Question

Johnny takes out a loan at 5% effective. He makes payments at the end of each year for 10 years. The first payment is $500, and each of the subsequent payment increases by $20 per year. Find the principal portion of the 6th payment.

Please show all work by hand. Thank you.

Answer 1

The first payment is $ 500. It increases by $ 20 per year. Thus for year 10 the payment is $ 680.

So,

A	B	C	D	E
Year	Payment	Towards Interest ((b/f E+B) *5/105)	Towards Principal (B-C)	Cumulative Principal (
10	680	680*5/105 = 32.38	647.62	647.62
9	660	(647.62+660)*5/105 = 62.27	597.73	1,245.35
8	640	(640+1245.35)*5/105 = 89.78	550.22	1,795.57
7	620	115.03	504.97	2,300.54
6	600	138.12	461.88	2762.42

Thus the principal portion was $ 461.88 for the sixth year payment