Answer:
The amount of interest that you would be paying in Year 2 is $7,927.03.
Explanation:
To calculate this, we first calculate the annual required fixed payment using the formula for calculating loan amortization as follows:
P = (A * (r * (1 + r)^n)) / (((1+r)^n) - 1) .................................... (1)
Where,
P = Annual required fixed payment = ?
A = Loan amount = $100,000
r = interest rate = 8.5%, or 0.085
n = number of payment years = 10
Substituting all the figures into equation (1), we have:
P = (100,000 * (0.085 * (1 + 0.085)^10)) / (((1+0.085)^10) - 1)
P = $15,240.77
Therefore, we have:
Interest amount paid in year 1 = Loan amount * interest rate = $100,000 * 8.5% = $8,500
Principal repaid in year 1 = Annual required fixed payment - Interest amount paid in year 1 = $15,240.77 - $8,500 = $6,740.77
Beginning loan balance in year 2 = Loan amount - Principal repaid in year 1 = $100,000 - $6,740.77 = $93,259.23
Interest amount paid in year 2 = Beginning loan balance in year 2 * interest rate = $93,259.23 * 8.5% = $7,927.03
Therefore, the amount of interest that you would be paying in Year 2 is $7,927.03.
