Question

You take out a loan for $100,000 at an annual interest rate of 5.9% that is to be paid with three equal annual payments of $37,341.79. How much principal will be paid in the second year?

Answer 1

Answer:

The principal repaid in the second year will be $33,296.

Explanation:

Out of each 37,341.79 payment a part of it will be principal repayment and a part of it will be interest payment. When the first 100,000 is paid (0.059*100,000)=5,900 is interest and (37,341-5,900)= 31,441 is principal repayment which means, that in the second year the principal remaining is (100,000-31,441)=68,559. So the interest payment in the second year will be (0.059*68,559)=4,045 and the principal repaid will be (37,341-4,045)=33,296.