Question

You plan to borrow $47,400 at a 7.5% 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:

I would need to pay Interest of $3150.44 in year 2

Explanation:

First Calculate annual Payment

The Principle is $ 47400, Therefore PV =$47400

Interest rate provided is 7.5% , Therefore i = 7.5%

Interest is compounded Annually, Therefore P/YR = 1

Period over which loan is to be repaid is 7 years, Therefore N = 7

Payments are made at the end of year

Using Financial Calculator for (PV =$47400, i = 7.5%, P/YR = 1,N = 7) The payment to be made annually is $8949.13

Then Determine Interest to be paid in Year 2 from Amortization Schedule

1. First year

Principle payment of $5394.13 is made

And Interest paid $ 3555 is paid

Leaving the Balance to be paid at $ 42005.87

1. Second year

Principle payment is $ 7440.57

Interest interest paid is $ 3150.44

Leaving a remaining balance of $36207.17 to be paid