Question

Suppose that you are borrowing $250,000 in the form of a 10 year loan with an...

Suppose that you are borrowing $250,000 in the form of a 10 year loan with an annual interest rate of 3% with monthly payments and monthly compounding. What will the balance be on this loan at the end of the 8th year.

a. $56,185

b. $58,889

c. $85,731

d. $89,160

e. $94,304

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Answer #1

First, let's find the monthly payment

Monthly interest rate, r = 3%/12

r = 0.0025

Number of monthly payments, n = 10 * 12

n = 120

At the end of 8 years, number of payments remaining = (10 - 8) * 12

n = 24

The balance on the loan at the end of 8th year is option a. $56,185

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