Question

Suppose you borrow $5000 at a 21% annual interest rate, compounded monthly (1.75% each month). At the end

of each month, you make a $325 payment.

Use this information to complete the table below. Round to the nearest cent as needed.

Month

1

2

3

4

5

Prior Balance

$

$5000

$4520.84

Question Help: Video

1.75% Interest

on Prior Balance

S

$74.81

Monthly Payment

$325

$325

$325

$325

Ending Balance

$

S

$5000

$4520.84

Answer 1

Explanation:

To fill in the table, we can use the following steps:

Calculate the interest for each month, which is the prior balance multiplied by the monthly interest rate (1.75%).

Subtract the monthly interest from the prior balance to get the new balance before the monthly payment.

Subtract the monthly payment from the new balance to get the ending balance.

Month Prior 1.75% Interest on Monthly Ending

Balance Prior Balance Payment Balance

1 $5000 $87.50 $325 $4762.50

2 $4762.50 $83.39 $325 $4520.84

3 $4520.84 $79.06 $325 $4276.90

4 $4276.90 $74.50 $325 $4029.23

5 $4029.23 $69.69 $325 $3777.87

Therefore, after 5 months of making $325 payments, the remaining balance on the loan is $3777.87.