Larry is repaying a loan with payments of $2,500 at the end of every two years. If the amount of interest in the fourth installm
ent is $2,458, find the amount of principal in the seventh installment. Assume an annual effective interest rate of 13%.
2 answers:
Answer:
$84
Explanation:
Installment payment = $2,500
Interest in fourth installment = $2,458
Principal in fourth installment = $2,500 - $2,458
Principal in fourth installment = 42
Annual effective interest rate = 13%
With payments made every 2 years
Let P be the outstanding amount at after third installment is paid.
Hence the interest in the fourth installment = outstanding amount after third installment x effective annual interest rate x 2
Hence,
2,458 = P x 0.13 x 2
Hence P = 9,453.87
Using the above calculation. we can prepare an amortization schedule as shown in the table below ( in attached file)
Amount of Principal paid in the 7th installment = $84
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