Question

You are about to borrow​ $15,000 "from a bank at an interest rate of"​ 8% compounded annually. You are required to make three equal annual repayments in the amount of​ $5,820.50 per​ year, with the first repayment occurring at the end of year 1. Show the interest payment and principal payment in each year.

Answer 1

Answer:

Year 1 $15000

Interest $1,200

repayment $5,820.50

Year 2 $10,379.50

Interest $830.36

repayment $5,820.50

Year 3 $5,389.36

Interest $431.15

repayment $5,820.50

Closing balance $0

Explanation:

Year 1 Interest = $15,000 * 8% = $1,200

Closing balance at the end of year 1 = $15,000 (loan principal) + $1,200(interest) - $5,820.50 = $10,379.50

Year 2 Interest = $10,379.50 * 8% = $830.36

Closing balance at the end of year 2 = $10,379.50 (opening balance prior year) + $830.36 (interest) - $5,820.50 = $5,389.36

Year 3 Interest = $5,389.36 * 8% = $431.15

Closing balance at the end of year 3 = $5,389.36 (opening balance prior year) + $431.15  (interest) - $5,820.50 = 0