Question

A $2000 loan is taken out at a bank. Monthly payments are $400 plus interest (10% nominal annual rate) on the unpaid balance.

a,) What will be the payments for the loan duration?

b.) What principal remains to be paid off after the third payment?

c.) What is the interest on the fourth payment

Answer 1

Year	Principal Payment ($)	Interest Payment ($)	Total Payment ($)	Balance Principal ($)
0	0	0	0	2000
1	400	200 [i.e., 0.10 * 2000]	600	1600
2	400	160 [i.e., 0.10 * 1600]	560	1200
3	400	120 [i.e., 0.10 * 1200]	520	800
4	400	80 [i.e., 0.10 * 800]	480	400
5	400	40 [i.e., 0.10 * 400]	440	0

a) Payments for the loan duration = 600 + 560 + 520 + 480 + 440 = $2,600

b) The principal remains to be paid off after the third payment = $800

c) The the interest on the fourth payment = $80