Question

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?

Homework Answers

Answer #1

First let us know the value of annual equal installments.

=> r*loan value / [1-(1+r)^(-n)]

=>(65,000*0.09) / [1-(1.09)^(-5)]

=>5,850 / [1-0.64993139]

=>5850/0.3500686

=>$16,711.01.

Now,

year beginning loan balance interest installment principal repaid (installment - interest) ending loan balance
1 65,000 (65,000*9%)=>5,850 16,711.01 (16,711.01-5,850)=>10,861.01 (65,000-10,861.01)=>54,138.99
2 54,138.99 (54,138.99*9%)=>4,872.51 16,711.01 (16,711.01-4,872.51)=>11,838.50 (54,138.99-11,838.50)=>42,300.49.

So from above table it can be seen that principal repaid in year 2 =>$11,838.50.

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