Question

Lou Lewis borrows $25,000 to be repaid over 14 years at 9 percent. Repayment of principal in the first year is: Use Appendix D. (Round your intermediate calculations to the nearest dollar value.

3211

961

1045

1188

Answer 1

Annual Loan Payment

Loan Amount (P) = $25,000

Annual interest rate (n) = 9.00% per year

Number of period (n) = 14 Years

Therefore, the annual loan payment = [P x {r (1 + r)n} ] / [(1 + r)n – 1]

= [$25,000 x {0.09 x (1 + 0.09)14}] / [(1 + 0.09)14 – 1]

= [$25,000 x {0.09 x 3.341727027}] / [3.341727027 – 1]

= [$25,000 x 0.300755432] / 2.341727027

= $7,518.89 / 2.341727027

= $3,211 per year

Interest for the first year

Interest for the first year = Loan amount x Interest rate

= $25,000 x 9.00%

= $2,250

Repayment of principal in the first year

Therefore, the Repayment of principal in the first year = Annual Loan Payment - Interest for the first year

= $3,211 - $2,250

= $961

“Hence, the Repayment of principal in the first year will be $961”