Question

On January 1, 2024, Cicero Corporation borrowed 12 million from a local bank to construct a new building over the next three years. The loan will be paid back in three equal installments of $4,740,657 on December 31 of each year. The payments include interest at a rate of 9%. What is the total amount of interest paid over the three years?

1) $1,422,197
2) $1,417,197
3) $1,432,197
4) $1,437,197

Answer 1

The exact total interest paid cannot be calculated without the amortization schedule or the exact formula used for the loan payments, as the loan appears to be complex, possibly including an annuity component.

Step-by-step explanation:

To determine the total amount of interest paid over the three years on the Cicero Corporation's loan, we need to calculate the interest component of each of the three equal payments of $4,740,657.

Let's denote the initial loan amount as Principal (P) which is $12 million, the annual interest rate (r) as 9%, and the number of years (n) as 3. Using the formula for the total payment, which includes both principal and interest, we can figure out the interest paid in each installment.

However, in the absence of an amortization schedule or the exact formula and method used to calculate the payment amount, we cannot provide the exact interest calculation. The information presented suggests we are dealing with a complex interest loan such as an annuity, which requires specific formulas and possibly iterative methods to solve.