Assume a five-year equal payment amortization schedule with an annual interest rate of 12% and annual payments.If the beginning principal is $8,000,then the first interest payment will be how large?
A)$960.00
B)$1,200.00
C)$2,219.28
D)There is not enough information to answer this question.

Question

Quizplus · Accepted Answer

The annual interest rate is 12%, so the periodic interest rate is 1% (12%/12 months). The annual payment is equal to the present value of an annuity factor of 5 years at 12%, which is $2,333.88. The monthly payment is $2,333.88/12, which is $194.49.

To calculate the first interest payment, we need to find the interest on the beginning principal of $8,000 for the first month. The interest is calculated by multiplying the beginning principal by the periodic interest rate.

Interest for the first month = $8,000 x 1% = $80

Therefore, the first interest payment is $80. Answer choice A is correct.

Assume a Five-Year Equal Payment Amortization Schedule with an Annual