Question

Allstar Company signed a $200,000 mortgage on July 1, 2018 for the purchase of their new garage building. The mortgage entailed equal monthly payments of $2,800 at the end of each month. The interest rate is 4.0% per year.  How much interest expense will be paid on August 31, 2018? (Round your answer to the nearest whole dollar.)

Answer 1

Loan amount = $200,000

Interest rate = 4%

Interest expense for July 2018 = Loan amount x Interst rate x 1/12

= 200,000 x 4% x 1/12

= $667

Monthly installment = $2,800

Loan principal repayment in first installment = Monthly installment - Interest expense for July 2018

= 2,800 - 667

= $2,133

Loan amount outstanding at the beginning of August 2018 = Loan amount - Loan principal repayment in first installment

= 200,000 - 2,133

= $197,867

Interest expense for August 2018 = Loan amount outstanding at the beginning of August 2018 x Interst rate x 1/12

= 197,867 x 4% x 1/12

= $660