Question

After graduating this May, Dale is planning on buying a new Ferrari for $250,000. He decides to finance his new car with a 5 year loan from Citibank with a 12% interest rate. His annual payment is $48,986. What will Dale's principal payment be at the end of the first year? Group of answer choices a) $5879 b) $10000 c) $18986 d) $50000.

Answer 1

c) $18,986

Step-by-step explanation:

The computation of the payment of principal is shown below:

= Annual payment - (Balance of Principal × interest rate)

= $48,986 - ($250,000 × 12%)

= $48,986 - $30,000

= $18,986

We do not consider the time period. Hence, we ignored it as it is not relevant for the computation part.

We simply multiply the principal balance with the interest rate and then deduct it from the annual payment.