6. (8 points) A loan of 10,000 is repaid with level payments made at the end...

Correct answer: (D) 294

Loan Amount (P0) = $10,000

No. of Monthly payment(n) = 36

Monthly interest rate(i) = 0.055/12 = 0.004583

Firstly calculate the Amount of Monthly payment (A):

or

Now calculate the Loan Balance at end of Payment 12(Year-1) and Payment 24(Year-2)

Remaining payment after 12th payment (n) = 24

Remaining payment after 24th payment (n) = 12

Interest paid in Second Year would be:

Please note: Intermediate calculations are not rounded off.

Hope it will help, please do comment if you need any further explanation. Your feedback would be highly appreciated.

A=P* (A/P, i, n)

A= P* i*(1 + i) ((1+i)n-1

A = 10,000* 0.004583 *(1 + 0.004583) 36 (1 + 0.004583)83 - 1

A= $301.96

P= A* ((1+i)" - 1 **(1+i)n

P12 = 301.96 * (1+0.004583)24 - 1 0.004583 * (1 + 0.004583)24

P12 = $6847.82

P24 = 301.96 * (1+0.004583)12 - 1 0.004583 * (1 + 0.004583)12

P24 = $3517.83

= A * 12 - (P24 – P12)

= 301.96 + 12-16847.42-3517.83)

= 293.518136734566

= $294