Question

# A loan is repaid in ten equal annual installments with the first installment paid one year...

A loan is repaid in ten equal annual installments with the first installment paid one year after the loan is made. The effective annual interest rate is 4%. The total amount of principal repaid in the fifth, sixth, and seventh payments combined is \$6,083. What is the total amount of interest paid in the second, third, and fourth payments combined?

1. Less than \$2,000

2. At least \$2,000, but less than \$2,020

3. At least \$2,020, but less than \$2,040

4. At least \$2,040, but less than \$2,060

5. \$2,060 or more

By hit and trial of total amount of principal in 5th, 6th and 7th payment combined We find that Amount of principal or loan=20000

Amortization Schedule:

 Payment Loan beginning balance Payment Interest payment Principal payment Loan ending balance 1 20000 \$2,465.82 \$800.00 \$1,665.82 \$18,334.18 2 \$18,334.18 \$2,465.82 \$733.37 \$1,732.45 \$16,601.73 3 \$16,601.73 \$2,465.82 \$664.07 \$1,801.75 \$14,799.98 4 \$14,799.98 \$2,465.82 \$592.00 \$1,873.82 \$12,926.16 5 \$12,926.16 \$2,465.82 \$517.05 \$1,948.77 \$10,977.39 6 \$10,977.39 \$2,465.82 \$439.10 \$2,026.72 \$8,950.66 7 \$8,950.66 \$2,465.82 \$358.03 \$2,107.79 \$6,842.87 8 \$6,842.87 \$2,465.82 \$273.71 \$2,192.10 \$4,650.77 9 \$4,650.77 \$2,465.82 \$186.03 \$2,279.79 \$2,370.98 10 \$2,370.98 \$2,465.82 \$94.84 \$2,370.98 (\$0.00)

Amount of interest in 2nd 3rd and 4th payment combined=1989.44 i.e., Less than \$2,000

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