Question

You borrow $2000 from your brother who charges you 6% APR and requires you to make monthly interest payments. You are not required to repay the principal until 5 years from today. How much will your payments in the fourth year total?

Answer 1

In this question borrow $2000 @ 6% APR and reqire to pay interest monthly and principal after 5 Year, So principal amount paid after 5 year so payment in 4th year only interest will be paid. So we require to calculate interest paid in 4th year.

Calculate Interest payment in 4th year

I = PRN

Where:

I = Interest

P = Principal amount

R = Rate of interest

N = Time

I = $2,000 x 6% x 1/12 = $10 per month.

So Total Interest paid in 4th year = $10 x 12 months = $120

So $120 will be payment in the fourth year total.