You borrow $30,000 at an annual rate of 7% and must repay it in 7 equal...
You borrow $30,000 at an annual rate of 7% and must repay it in 7 equal installments at the end of each of the next 7 years. How much will you still owe at the end of the second year, after you make the second payment?
Homework Answers
Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
30,000=Annuity[1-(1.07)^-7]/0.07
30,000=Annuity*5.389289402
Annuity=30,000/5.389289402
=$5566.60(Approx)
Interest payment for 1st year=$30,000*7%=$2100
Hence principal payment for 1st year=(5566.6-2100)=$3466.6
Balance due after 1st year=(30,000-3466.6)=$26533.4
Interest payment for second year=$26533.4*7%=$1857.338
Hence principal payment for 2nd year =$5566.60-1857.338=$3709.262
Hence owed balance after 2nd year=26533.4-3709.262
=$22824.14(Approx).
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