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In order to buy a new car, you got 65,000$ credit from your local bank. According...

In order to buy a new car, you got 65,000$ credit from your local bank. According to the loan agreement, you will payback this loan in 5 equal installments. If the bank charges 9% interest rate, what is the “principal paid” for the year 2?

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Answer #1

Present value of annuity = EMI * [ 1 - ( 1 + INT RATE )^ - NO OF YEARS ] / INT RATE

65000 = EMI * [ 1 - 1.09^-5] /0.09

EMI = 65000 / 3.88965

= 16711.01

Interest portion in first installment = 65000 * 9% = 5850

Principal portion in first installment = 16711.01 - 5850 = 10861.01

Principal at the end of 1st year = 65000 - 10861.01 = 54138.99

Interest portion in 2nd installment = 54138.99 *0.09 = 4872.51

Principal portion in 2nd installment = 16711.01 - 4872.51 = 11838.50

Principal paid for year 2 = 11838.50

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