Question

The Company borrowed $266,779 at 8.51 % to be repaid quarterly over 30 years. They just remitted payment number 74. How much interest did the bank receive in year 3

Answer 1

We are given the following information:

Payment	PMT	To be calculated
Rate of interest	r	8.51%
Number of years	n	30.00
Monthly	frequency	12.00
Loan amount	PV	266779.00

We need to solve the following equation to arrive at the required PMT

So the PMT is 2053.19

With this we can create the following amortization schedule:

• Opening balance = previous year's closing balance
• Closing balance = Opening balance-Principal repayment
• PMT is calculated as per the above formula
• Interest = 0.0851 /12 x opening balance
• Principal repayment = PMT - Interest
• Interest for year 3 can be calculated by summing up the interest values of months 25 to 36
  • Interest for year 3 = $1,862.10 + $1,860.74 + $1,859.38 + $1,858.00 + $1,856.62 + $1,855.23 + $1,853.82 + $1,852.41 + $1,850.98 + $1,849.55 + $1,848.11 + $1,846.65
  • Interest for year 3 = 22,253.58