In: Finance
A loan is repaid in ten equal annual installments with the first installment paid one year after the loan is made. The effective annual interest rate is 4%. The total amount of principal repaid in the fifth, sixth, and seventh payments combined is $6,083. What is the total amount of interest paid in the second, third, and fourth payments combined?
Less than $2,000
At least $2,000, but less than $2,020
At least $2,020, but less than $2,040
At least $2,040, but less than $2,060
$2,060 or more
By hit and trial of total amount of principal in 5th, 6th and 7th payment combined We find that Amount of principal or loan=20000
Amortization Schedule:
Payment | Loan beginning balance | Payment | Interest payment | Principal payment | Loan ending balance |
1 | 20000 | $2,465.82 | $800.00 | $1,665.82 | $18,334.18 |
2 | $18,334.18 | $2,465.82 | $733.37 | $1,732.45 | $16,601.73 |
3 | $16,601.73 | $2,465.82 | $664.07 | $1,801.75 | $14,799.98 |
4 | $14,799.98 | $2,465.82 | $592.00 | $1,873.82 | $12,926.16 |
5 | $12,926.16 | $2,465.82 | $517.05 | $1,948.77 | $10,977.39 |
6 | $10,977.39 | $2,465.82 | $439.10 | $2,026.72 | $8,950.66 |
7 | $8,950.66 | $2,465.82 | $358.03 | $2,107.79 | $6,842.87 |
8 | $6,842.87 | $2,465.82 | $273.71 | $2,192.10 | $4,650.77 |
9 | $4,650.77 | $2,465.82 | $186.03 | $2,279.79 | $2,370.98 |
10 | $2,370.98 | $2,465.82 | $94.84 | $2,370.98 | ($0.00) |
Amount of interest in 2nd 3rd and 4th payment combined=1989.44 i.e., Less than $2,000