Question

You plan to borrow $47,200 at a 7.2% 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?

a. $3,008.10
b. $6,226.94
C. $3,050.75
d. $3,298.40
e. $8,819.27

Answer 1

The interest payment in Year 2 would be $3,005.28.

This correct answer is none of the above.

Step-by-step explanation:

To find the amount of interest you would be paying in Year 2, we need to calculate the amortized payment for each year and subtract the principal payment from it.

First, find the annual payment amount by dividing the total loan amount by the number of payments: $47,200 / 7 = $6,742.86.

Next, calculate the principal payment for Year 2 by subtracting the remaining principal after Year 1 from the total loan amount: $47,200 - ($6,742.86 * 1) = $40,457.14.

Finally, calculate the interest payment for Year 2 by subtracting the principal payment from the annual payment amount: $6,742.86 - $40,457.14 = $3,005.28.

This correct answer is none of the above.