Question

You plan to borrow $40,000 at a 6% annual interest rate. The terms require you to amortize the loan with 7 equal end-of-year payments. How much interest would you be paying in Year 2

Answer 1

Answer:

Interest for second year $2,114.08

Explanation:

given data

loan Amount = $40,000.00  

Interest rate r = 6.00%  

time period t = 7  

solution

we get here first Equal Monthly Payment EMI that is express as

EMI = $\frac{P \times r \times (1+r)^t}{(1+r)^t-1}$      ................1

here P is Loan Amount and r is rate and t is time period  

put here value and we get  

EMI = $\frac{40000 \times 0.06 \times (1+0.06)^7}{(1+0.06)^7-1}$    

EMI = $7165.40  

now

we get here interest for second year that is

Closing balance at year 1 = opening balance + Interest - EMI Payment

Closing balance at year 1 =  $40,000  + $2400 - $7165.40  

Closing balance at year 1 =   $35234.60

so Interest for second year $2,114.08