Question

An individual borrowed 5000 dollars and made equal monthly payments over a 20 year period. If the interest rate was 5 percent and she paid the lender a total of 7920, the principal payment in the first month was

Answer 1

To find the principal payment in the first month, we can use the formula for the monthly payment on a loan. By calculating the interest payment and subtracting it from the monthly payment, we can determine the principal payment in the first month.

Step-by-step explanation:

To find the principal payment in the first month, we need to calculate the monthly payment amount. The interest rate is given as 5% and the total amount paid over 20 years is $7920. Let's use the formula for the monthly payment on a loan:

Monthly payment = Loan amount / Present value factor for annuity

We know the monthly payment is $7920 / 240 months = $33.

Now let's calculate the principal payment in the first month:

Principal payment = Monthly payment - Interest payment

Interest payment = Loan amount * Interest rate per month

Interest rate per month = 5% / 12 months = 0.4167%

Interest payment = $5000 * 0.4167% = $20.83

Principal payment = $33 - $20.83 = $12.17