Question

Your bank offers to lend you $114,400 at an 8.5% annual interest rate to start your new business. The terms require you to amortize the loan with 10 equal end-of-year payments. How much interest would you be paying in Year 2?

Answer 1

Answer: The amount of interest to be paid is $972

Explanation: This is gotten by firstly getting the amount of money to return per year without the interest which is $114400/10(years)= 11440

11440 is to be paid per year without interest. To get amount of interest is $11440*8.5/100 = $972 this is the amount of interest to be paid per year including in year 2.

Therefore, total amount of money together with interest to be paid each year and in year 2 = $11440+$972=12412.