Question

You borrowed $100,000 at an interest rate of 3.8%, with constant annual payments of both principal and interest over 15 years.

What is your annual payment?

What is the outstanding balance after 4 years?

Answer 1

a.Information provided:

Present value= $100,000

Time= 15 years

Interest rate= 3.8%

Enter the below in a financial calculator to compute the amount of annual payment:

PV= -100,000

N= 15

I/Y= 3.8

Press the CPT key and PMT to compute the annual payment:

The value obtained is 8,868.78

Therefore, the amount of annual payment is $8,868.78

b.Outstanding balance after 4 years= Loan – annual payment of 4 years

                                                                    = $100,000 – 35,475.14

                                                                    = $64,524.8650    $64,524.87.

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