Question

You plan to borrow $40,000 at a 6% annual interest rate. The terms require you to amortize the loan with 7 equal end-of-year payments. How much interest would you be paying in Year 2

Answer 1

Interest for second year $2,114.08

Step-by-step explanation:

given data

loan Amount = $40,000.00

Interest rate r = 6.00%

time period t = 7

solution

we get here first Equal Monthly Payment EMI that is express as

EMI =
`(P * r * (1+r)^t)/((1+r)^t-1)` ................1

here P is Loan Amount and r is rate and t is time period

put here value and we get

EMI =
`(40000 * 0.06 * (1+0.06)^7)/((1+0.06)^7-1)`

EMI = $7165.40

now

we get here interest for second year that is

Closing balance at year 1 = opening balance + Interest - EMI Payment

Closing balance at year 1 = $40,000 + $2400 - $7165.40

Closing balance at year 1 = $35234.60

so Interest for second year $2,114.08