Question

A $138,000 loan has an interest rate of 5% compounding annually, with a term of three years. What is the interest amount in the first year?

a) $20,700.00
b) $7,607.25
c) $7,245.00
d) $6,900.00

Answer 1

The interest amount for the first year of a $138,000 loan at 5% interest compounded annually is $6,900.00, which makes the correct answer d) $6,900.00.

Step-by-step explanation:

To calculate the interest amount of a $138,000 loan with an interest rate of 5% compounding annually for the first year, you simply apply the interest rate to the principal for that period. Since it is the first year and the interest is compounded annually, no previous interest is added to the principal before the calculation.

The interest for the first year would be:

Interest = Principal × Interest Rate
Interest = $138,000 × 0.05
Interest = $6,900.00

Therefore, the correct answer is d) $6,900.00.