In: Finance
Calculate how much interest you would pay during the first 12 months if you were to borrow $10,000 at 6% to paid off in 5 years via monthly installments. This loan is compounded monthly. Based on the total amount of interest paid during the first 12 months, what is the loan effective interest rate for year 1?
1: Interest paid in first 12 months = 515.90
2: Effective rate = Interest/Loan
= 515.90/10000
= 5.16%
Workings
Loan Amount | Interest Rate | Term in Years | Monthly Payment | ||
$10,000.00 | 6.00% | 5 | $193.33 | ||
Month | StartingBalance | Interest | Principal | EndingBalance | TotalInterest |
1 | $10,000.00 | $50.00 | $143.33 | $9,856.67 | $50.00 |
2 | $9,856.67 | $49.28 | $144.04 | $9,712.63 | $99.28 |
3 | $9,712.63 | $48.56 | $144.76 | $9,567.86 | $147.85 |
4 | $9,567.86 | $47.84 | $145.49 | $9,422.37 | $195.69 |
5 | $9,422.37 | $47.11 | $146.22 | $9,276.16 | $242.80 |
6 | $9,276.16 | $46.38 | $146.95 | $9,129.21 | $289.18 |
7 | $9,129.21 | $45.65 | $147.68 | $8,981.53 | $334.82 |
8 | $8,981.53 | $44.91 | $148.42 | $8,833.11 | $379.73 |
9 | $8,833.11 | $44.17 | $149.16 | $8,683.95 | $423.90 |
10 | $8,683.95 | $43.42 | $149.91 | $8,534.04 | $467.32 |
11 | $8,534.04 | $42.67 | $150.66 | $8,383.38 | $509.99 |
12 | $8,383.38 | $41.92 | $151.41 | $8,231.97 | $551.90 |