Question

On December 1, 2024, Garden Products borrowed $87,000 on a 6%,8-year note with annual installment payments of $10,875 plus interest due on December 1 of each subsequent year. Which of the following describes the first installment payment made on December 1,2025 ? (Round your answer to the nearest dollar.) $5220 interest only $10,875 principal plus $10,875 interest $10,875 principal plus $5220 interest $10.875 principal plus $653 interest

Answer 1

The first installment payment made on December 1, 2025, consists of $10,875 for principal repayment and $5,220 for interest, totaling $16,095.

Step-by-step explanation:

The first installment payment made on December 1, 2025, for the loan borrowed by Garden Products involves both principal and interest. First, we calculate the interest for the first year using the formula Interest = Principal × Interest Rate × Time. The interest for one year is $87,000 × 0.06 which equals $5,220. The total payment in the first year is the sum of the annual installment payment and the interest. Since the installment payment is known to be $10,875, the total payment would be $10,875 principal plus $5,220 interest.

Answer 2

The first installment payment made on December 1, 2025, will be for $10,875 principal plus $5,220 interest, representing the annual 6% interest on the initial loan amount of $87,000.

Step-by-step explanation:

The student is asking about an installment payment for a note with a principal balance and compounded annual interest. On December 1, 2025, they'll make a payment on a note that was for $87,000 at 6% interest per year with annual installment payments of $10,875. We need to determine the interest component for the first year.

To find the interest for the first year, we calculate 6% of the initial loan amount, which is $87,000. The calculation is as follows: $87,000 × 6% = $5,220. This is the interest component for the first year. Therefore, the first installment payment includes this interest of $5,220 plus a portion of the principal, which is $10,875.

So, the correct description of the first installment payment made on December 1, 2025, is $10,875 principal plus $5,220 interest, which matches one of the options provided by the student.