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boyakko [2]
3 years ago
12

Suppose you borrowed $15,000 at a rate of 8.5% and must repay it in 5 equal installments at the end of each of the next 5 years.

By how much would you reduce the amount you owe in the first year?
$2,404.91


$2,531.49


$2,658.06


$2,790.96


$2,930.51
Business
1 answer:
jekas [21]3 years ago
8 0

Answer:

The amount that would be reduce for the first year is $2,531.49

Explanation:

Hi, first we have to find the amount of the equal installments to be paid for the next 5 years, for that, we need to solve for "A" the following equation.

PresentValue=\frac{A((1+r)^{n}-1) }{r(1+r)^{n} }

Where:

Present Value = the borrowed amount

A = equal installments

r = rate of the loan

n = number of periodic and equal installments

Everything should look like this.

15,000=\frac{A((1+0.085)^{5}-1) }{0.085(1+0.085)^{5} }

15,000=A(3.940642079)

Therefore, A= $3,806.49

Now, in order to find the amount that would be reduced in the first year, we have to use the following formula.

AMT(reduced)=Payment-Interest

So, it should look like this.

AMT(reduced)=3,806.49-15,000*0.085

AMT(reduced)=3,806.49-1,275=2,531.49

Best of luck.

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