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You plan to borrow $36,500 at a 7.7% annual interest rate. The terms require you to amortize the loan with 7 equal end-of-year payments. How much interest would you be paying in Year 2?

Sagot :

abiolataiwo2015

The amount of interest you would be paying in Year 2 is: $2,492.62.

Interest

First step is to calculate the Equal Monthly Payment

Equal Monthly Payment=P×r×(1+r)^t/(1+r)^t-1

Where:

P=Principal=$36,500

r=Rate=7.7%

t=Time=7 years

Equal Monthly Payment=36,500×0.077×(1+0.077)^7÷(1+0.077)^7-1

Equal Monthly Payment=36,500×0.077×(1.077)^7÷(1.077)^7-1

Equal Monthly Payment=36,500×0.077×1.6807763÷1.6807763-1

Equal Monthly Payment=4,723.82/0.6807763

Equal Monthly Payment=$6,938.875

Second step is to calculate Year 1 Closing balance

Year 1 Closing balance  = Beginning  balance + Interest - EMI Payment

Year 1 Closing balance=  $36,500 +($36,500×7.7%) - $6,938.875

Year 1 Closing balance=  $36,500 + $2,810.5 -$6,938.875

Year 1 Closing balance =   $32,371.625

Third step is to calculate year 2 interest

Year 2 Interest= $32,371.625×7.7%

Year 2 Interest=$2,492.62

Therefore the amount of interest you would be paying in Year 2 is: $2,492.62.

Learn more about interest here:https://brainly.com/question/15259578

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