Question

John asks for a loan with principalEUR 180,000.00, maturity 10 years and annual payments. The interest rate of the loan is 14%. Assuming that this loan has constant annuities, compute the principal pending after the second year payment.

Select one:

a.Between €172,000.00 and €174,000.00

b.Between €188,000.00 and €190,000.00

c.Between €160,000.00 and€162,000.00

d.Between €178,000.00 and €180,000.00

e. No answer

Answer 1

The annual payments can be calculated using the formula, annual payment=Principal*interest rate*((1+interest rate)^n)/[((1+interest rate)^n)-1]

annual payment=180000*14%*((1+14%)^10)/[((1+10%)^10)-1]

annual payment=34,508.4

I have mentioned clearly the formulas and the principal amount pending after 2nd payment in the below table

The outstanding amount is 160,079.9 which lies between 160,000 and 162,000

Option c is correct