Assume that you borrow $10,000 at an annual interest rate of 6%. Your loan agreement calls for monthly payments of $200, which include both interest and principal. Your first payment is made one month after you received the loan. The amount of interest and principal applied to your first instalment, respectively, would be:
A) $60 and $150.
B) $140 and $60.
C) $50 and $150.
D) $150 and $50.

Question

Quizplus · Accepted Answer

To calculate the interest and principal for the first payment, we need to use the formula for monthly payments on a loan:

PMT = (P*r)/(1 - (1+r)^(-n))

where PMT is the monthly payment, P is the loan amount, r is the monthly interest rate (0.06/12 = 0.005), and n is the number of payments (which is 60 in this case, since there are 12 payments per year for 5 years).

Plugging in the values, we get:

200 = (10000*0.005)/(1 - (1+0.005)^(-60))

Solving for the remaining balance after the first payment, we get:

10000*(1+0.005) - 200 = 9749.95

So, for the first payment, the interest portion would be:

10000*0.005 = $50

and the principal portion would be:

200 - 50 = $150

Therefore, the answer is C, $50 and $150.

Assume That You Borrow $10,000 at an Annual Interest Rate