Question

The following table shows a portion of a three-year amortization schedule. A 3-year amortization schedule. The loan amount or principal is 11,940 dollars and the interest rate is 7. 45 percent. At 24 months, the monthly payment is 371 dollars and 13 cents, the principal paid is 342 dollars and 44 cents, the interest paid is 28 dollars and 69 cents, and the balance is 4,278 dollars and 98 cents. After two years, how much has been paid into interest? a. $4,628. 14 b. $1,246. 10 c. $978. 96 d. $1,912. 5.

Answer 1

The correct statement is that at the end of two years a total interest of 1246.10 has been paid  on a principal of $11940, where the interest rate is 7.45 percent. So, the correct option is B.

The calculation on monthly payment of interest can be done by ascertainment of the interest paid for two years and division of such amount by total number of months.

Calculation of Monthly Payment

We know that the interest to be paid for the first year will be close to $902 and that for the second year will be calculated as follows,

$\rm Interest for\ Second\ Year= Monthly\ Payment\ x\ 12\\\\\rm Interest for\ Second\ Year= 28.69\ x\ 12\\\\\rm Interest for\ Second\ Year= \ 344.28$

So, the total interest paid at the end of the second year will be,

$\rm Total\ Interest\ for\ Two\ Years= Interest\ for\ One\ Year+ Interest\ for\ Second\ Year\\\\\rm Total\ Interest\ for\ Two\ Years= 902+344.10\\\\\rm Total\ Interest\ for\ Two\ Years= \ 1246.10$

So, the total interest paid fully at the end of two years will be $1246.10

Hence, the correct option is B that the  total interest of 1246.10 has been paid  on a principal of $11940 at the end of two years upon monthly payments of such years.

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