Question

Bob Katz is purchasing a new Honda Pilot for $35,000. He is financing $30,000 with a six year, 4% loan with annual payments. Construct an amortization schedule, in the 2nd year row, corresponding to his second annual payment, what is the dollar amount of the principal reduction?

$5018

$4825

$4704

$4523

Answer 1

Amount financed = $30,000
Number of payments = 6
Interest rate = 4%

Let annual payment be $x

$30,000 = $x/1.04 + $x/1.04^2 + $x/1.04^3 + $x/1.04^4 + $x/1.04^5 + $x/1.04^6
$30,000 = $x * (1 - (1/1.04)^6) / 0.04
$30,000 = $x * 5.242137
$x = $5,723

Annual payment = $5,723

Principal repaid in 2nd payment = $4,704