Question

n order to buy a house, Megan Shipman is going to borrow $275,000 today with a 2.5 percent nominal annual rate of interest. She is going to make monthly payments over 30 years. Assume full amortization of the loan. What will be the balance left on the loan at the end of 2 months if she makes a payment of $2000 each month instead of the bank's required loan payments?

A. 271,902.12

B. 273,203.33

C. 274,155.19

D. 274,154.16

E. 272,142.86

Answer 1

Given,

Loan amount = $275000

Interest rate = 2.5% or 0.025

Monthly payment = $2000

Solution :-

Monthly interest rate = 0.025/12 = 0.00208333333

First month interest = Loan amount x monthly interest rate

= $275000 x 0.00208333333 = $572.92

Balance after 1 month = Loan amount - (monthly payment - first month interest)

= $275000 - ($2000 - $572.92)

= $275000 - $1427.08 = $273572.92

Second month interest = balance after 1 month x monthly interest rate

= $273572.92 x 0.00208333333 = $569.94

Balance after 2 months = balance after 1 month - (monthly payment - second month interest)

= $273572.92 - ($2000 - $569.94)

= $273572.92 - $1430.06 = $272142.86

So, option 'E' is correct.