Question

Suppose you borrowed $75,000 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 first year, after you have made the first payment?

Answer #1

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 | |||||

= [ $75000x0.085 x (1+0.085)^5]/[(1+0.085)^5 -1] | |||||

= [ $6375( 1.085 )^5] / [(1.085 )^5 -1 | |||||

=$19032.43 | |||||

First year interest = $75000*8.5% =6375 | |||||

still owe at the end of the first year =$75000+6375-19032.43 | |||||

=$62342.57 |
|||||

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