Question

Prescott Bank offers you a five-year loan for $56,000 at an annual interest rate of 6.75 percent. What will your annual loan payment be? |

Answer #1

Annual rate(M)= | yearly rate/12= | 6.75% | Annual payment= | 13566.58 | |

Year | Beginning balance (A) | Annual payment | Interest = M*A | Principal paid | Ending balance |

1 | 56000.00 | 13566.58 | 3780.00 | 9786.58 | 46213.42 |

2 | 46213.42 | 13566.58 | 3119.41 | 10447.18 | 35766.24 |

3 | 35766.24 | 13566.58 | 2414.22 | 11152.36 | 24613.88 |

4 | 24613.88 | 13566.58 | 1661.44 | 11905.14 | 12708.74 |

5 | 12708.74 | 13566.58 | 857.84 | 12708.74 | 0.00 |

Where |

Interest paid = Beginning balance * Annual interest rate |

Principal = Annual payment – interest paid |

Ending balance = beginning balance – principal paid |

Beginning balance = previous Year ending balance |

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