Question

Jane Ranch bought a tractor for $5,000. Jane has decided that she can afford to pay only $1,000 per month. Can you calculate at the end of month 2 the balance of the loan outstanding? Use the U.S. Rule. The monthly interest charged is 5% on the unpaid balance.

Answer 1

At the end of month 2, the balance of the outstanding loan is $3,360.

Step-by-step explanation:

To calculate the outstanding balance of the loan at the end of month 2, we will use the U.S. Rule, which means we will calculate the interest based on the unpaid balance.

At the beginning, the loan balance is $5,000.

In the first month, Jane pays $1,000 towards the loan, so the remaining balance is $4,000.

5% interest will be charged on this unpaid balance, giving us an interest of $200.

In month 2, Jane again pays $1,000, so the remaining balance is $3,200.

5% interest will be charged on this balance, resulting in an interest of $160.

Therefore, at the end of month 2, the balance of the loan outstanding is $3,200 + $160 = $3,360.