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