Question

Suppose that you have just borrowed $200,000 using a 20-year loan with an annual interest rate of 10% arxl monthlypaymentsandmonthlycompounding. Howmuchofyourfirstpaymentwillconsistofinterest?

Answer 1

Answer: $1666.67

Explanation:

Given from the question

Principal (P) = $200,000

Rate= 10%

Time= 20years

The interest (I) on the first payment is the extra money that is to be paid in addition to the principal borrowed.

The interest for the first year has the formula:

I = (P×R) ÷ 100

I= (200000×10) ÷100

I = $20,000

Therefore the extra amount to be paid on the loan of $200,000 that increases at a rate of 10% for the first year would be $20,000.

The interest compounds monthly therefore, the payment on the first month would be

First Month Interest= 20,000÷12

=$1666.67

Therefore the part of the first payment that would be interest is $1666.67.