Question

3. A loan of $5000 is to be paid off with level payments at the end of each month at 3% compounded monthly. The amount of interest paid in the 61" payment is $2.24 and the amount of principal repaid in the 42nd payment is $70.31. Find: a) The amount of principal repaid in the 61" payment. b) The size of the level monthly payment. c) The number of months necessary to pay off the loan. d) The amount of interest paid in the 10 payment

need process

Answer 1

Part (a):

Let the principal outstanding after 60 payments be X

Interest out of 61st payment is given as $2.24

Then, $2.24/X= 3%/12 .   X= 2.24/0.0025 = $896

Monthly payments= $75.98 as follows:

Amount of principal repaid in 61st payment= $75.98- $2.24 = $73.74

Part (b):

Size of level monthly payment= $75.98 as in part (a).

Part (c):

Number of months necessary to pay off the loan= 72 as follows:

Part (d):

Interest paid in the 10th payment= $11.06 as per the relevant portion of amortization schedule below: