Question

You have borrowed a loan of $20,000 from a bank to buy a car from Chase at the interest rate of 7.5% each year. You have promised Chase to make annual mortgage style payments. If you want to borrow this loan for one year, what is the principal payment? a. $21,500.00 b. $20,000.00 c. $21,100.00 d. $17,690.25 e. None of the above

Answer 1

a. $21,500.00

Step-by-step explanation:

Principal Payment is the amount which includes Interest Payment along with any additional amount paid with Interest Amount.

The simple way to calculate the Principal Payment is as follows;

Interest Payment = P x
`(r)/(n)`

where;

P = Loan Amount = $20,000

r = Interest Rate = 7.5% = 0.075

n = Number of periods = 1

So;

Interest Payment = $20,000 x
`(0.075)/(1)`

Interest Payment = $20,000 x 0.075

Interest Payment = $1,500

Since the loan was only for 1 year so the principal payment can be calculated as follows;

Principal Payment = Loan Amount + Interest Payment

Principal Payment = $20,000 + $1,500

Principal Payment = $21,500

Hence Option a. $21,500.00 is the correct answer.