Question

Trudy initiates a $5,000 2-year fixed-rate installment loan on November 1. Her initial monthly payment is $25 in interest and $196.60 in principal repayment. What will be the ending balance for the year end?

A) $4,605.82
B) $4,803.40
C) $4,928.40
D) $5,053.40

Answer 1

To find the year-end balance of Trudy's loan, we subtract two monthly principal payments of $196.60 from the original $5,000 loan, leading to a balance of $4,606.80.

Step-by-step explanation:

The question involves calculating the ending balance of an installment loan after some payments have been made. Trudy initiates a $5,000 loan with a monthly payment of $25 in interest and $196.60 in principal. To determine the ending balance at year-end, we must subtract the total principal repaid over the two months from the initial loan amount. To calculate this, we take the initial loan amount ($5,000) and subtract the sum of the principal repayments for November and December. With each monthly payment, Trudy repays $196.60 of the principal. So, $5,000 - (2 * $196.60) = $5,000 - $393.20 = $4,606.80. Hence, the ending balance for the year-end would be $4,606.80, which is not listed among the provided options, indicating a potential error in the question or the available choices.