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$10,000 is borrowed at 10% a year interest for five years. At the end of each year, the borrower...

Question:

$10,000 is borrowed at 10% a year interest for five years. At the end of each year, the borrower pays interest plus 20% of the remaining principal. Solve for the yearly payment AND the remaining principle at the end of each year. Also, determine the total payment made over the 5 years.

Repayment Schedule

When someone takes a loan the repayment schedule attached to the loan tells the amount needs to be paid in the period and interest and principal component covered in the installment.

Answer and Explanation:

The 5-year repayment schedule for the loan is as below

Year Openin Balance Interest @10% Repyament Closing Balance
1 10,000 1,000 3,000 8,000
2 8,000 800 2,800 6,000
3 6,000 600 2,600 4,000
4 4,000 400 2,400 2,000
5 2,000 200 2,200 -
13,000

the last column of closing balance represents the amount of principal left at the end of each year.

Also, the payment made during the 5 years is $13,000


Learn more about this topic:

Debt Repayment Issues: Signs & Examples
Debt Repayment Issues: Signs & Examples

from Focus on Personal Finance: Online Textbook Help

Chapter 5 / Lesson 17
169

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