Question

Yassine took a loan of $6,744.29. The rate of interest is 5% compounded annually. The loan is to be repaid by annual payments of $500 at the end of each year for 23 years. What is the outstanding balance of the loan after the third payment?

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Answer 1

Total amount paid at the end of 23 years = 500x23 = 11,500

At the end of the first year, the interest amount = (Principal x Rate x Time)/100 = (6,744.29 x 5 x 1)/100 = 337.21

Total amount to be paid at the end of the first year = 6,744.29+337.21 = 7081.5

Paid = 500

Remaining = 6,581.5

This becomes the principal amount for the second year.

Interest = (Principal x Rate x Time)/100 = (6,581.5 x 5 x 1)/100 = 329.08

Total amount to be paid at the end of the second year = 6,581.5+329.08 = 6,910.58

Paid = 500

Remaining = 6410.58

This becomes the principal amount for the third year.

Interest = (Principal x Rate x Time)/100 = (6410.58 x 5 x 1)/100 = 320.53

Total amount to be paid = 6410.58 + 320.53 = 6,731.11

Paid = 500

Amout remaining at the end of third year after paying third payment = 6,731.11- 500 = 6,231.11

Also, you can refer to the whole amortization table as calculated below: