You borrowed $30,000 from a local bank to fund the start-up costs of a new business venture.

You borrowed $30,000 from a local bank to fund the start-up costs of a new business venture. You desire an amortized loan with level payments over 5 years. Payments are made at the end of each year and the interest rate is 8 percent.

How much are the annual payments?
How much interest is attributable to the first payment?
What is the loan balance at the end of year 1?

Expert Solution

First the annual payment is calculated using the present value of annuity formula.

(a) Annual payment =$ 7,514.09

Interest in first instalment is the interest on outstanding balance

(b) interest = $ 2,400

(c) Loan balance = $ 24,885.91

Calculations are shown in the picture below.

jeff jeffy answered 2 years ago

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