Tim borrows 10000 at 7 compounded monthly and agrees to make

Tim borrows $10,000 at 7%, compounded monthly and agrees to make principle payments on the loan at a rate of $2,000 per year for 5 years. Given Tim makes annual payments of the $2,000 in principle along with any interest due, the amount of interest paid at the time of his third payment is closest to

5. Tim borrows $10,000 at 7%, compounded monthly and agrees to make principal payments on the loan at a rate of per year for five years. Given Tim makes annual payments of the $2,000 in principal along with any interest due, the amount of interest paid at the time of his third payment is closest to. (5) a) $4,200 b) $350 c) $700 d) $723 e) $434 f $2,100 g) $1,260 h) $2,168 i) $1,301

Solution

Annual Interest rate 7% Monhtly rate 0.58% Effective Annual interest monthly compounding 7.23% (1.00583)*12 Times - 1 Now, At the end of third year, Principal outstanding (10000-4000) 6000 Interest (6000*7.225%) 433.5 Answer is e. $ 434