Question

Would you show the work on how you get the following answer for this problem. You...

Would you show the work on how you get the following answer for this problem.

You borrow $55,000 from a bank at an annual interest rate of 11%. The loan is to be repaid in 6 equal annual installments. What portion of the 3rd payment is interest?

The answer is $4,437

I am using the BA II Plus professional calculator.

I plugged in the following:

N is 6

I/Y is 11

PV is 55,000

FV is 0

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Homework Answers

Answer #1

First you need to find the annual payments:

Annual installments = 13,000.711

Keys to use in a financial calculator:

PV 55000

I/Y 11

N 6

CPT PMT

Year 1 interest = 55,000 * 0.11 = 6,050

Remaining year 1 principal = 13,000.711 - 6050 = 6,950.711

Remaining principal = 55,000 - 6,950.711 = 48,049.289

Year 2 interest = 48,049.289 * 0.11 = 5,285.4218

Remaining year 2 principal = 13,000.711 - 5,285.4218 = 7,715.2892

Remaining principal = 48,049.289 - 7,715.2892 = 40,333.9998

Year 3 interest = 40,333.9998 * 0.11 = 4,437

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