Question

You are offered a line of credit that requires a minimal 3% repayment of principal each month at an interest rate of 3,6%, compounded monthly. If you draw down $15,000 on the line, what will be the second month's payment?

a. $480

b.$460

c.$470

d. $450

Answer 1

Balance principal after 1^st payment = Principal x (1- 0.03)

   = $ 15,000 x 0.97

                                                      = $ 14,550

For 2^nd payment,

Interest amount = Balance principal x 0.036/12

                         = $ 14,550 x 0.003

                       = $ 43.65

Principal portion = Balance principal x 0.03

                           = $ 14,550 x 0.03

                         = $ 436.50

Total payment = Interest amount + Principal portion

                       = $ 43.65 + $ 436.50 = $ 480.15 or $ 480

Second month’s payment will be $ 480

Hence option “a. $ 480” is correct answer.