Question

You are taking out a $18707 loan. It will be amortized with fixed payments over 10 years. It is to be paid quarterly and the APR is 4%.

What is the interest payment on the loan in the second quarter?

Select one:

a. $180.90

b. $183.24

c. $226.35

d. $178.28

e. $187.07

Answer 1

Effective quarterly rate = 4%/4 = 1%

Total number of payments = 10*4 = 40

Now let's calculate the quarterly payment with the following inputs.

N = 40

I/Y = 1

PV = -18,707

FV = 0

CPT PMT

PMT = 569.7328714

Number of payments left after the first quarter = 40 - 1 = 39

Loan outstanding after the first quarter is obtained by calculating the PV of the 39 payments

N = 39

I/Y = 1

PMT = 569.7328714

FV = 0

CPT PV

PV = 18,324.33713

Interest payment in second quarter is PV of the loan outstanding as of second quarter * quarterly interest rate
Interest payment in second quarter = 18,324.33713 * 1%
Interest payment in second quarter = 183.2433713 (option b)

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