A loan is being repaid in five annual payments. The first two payments are $200. The third and fourth payments are $400. The final payment is $500. The annual effective interest rate is 6%. Determine the interest portion of the third payment.

Question

Skye

Business

13 October, 06:05

A loan is being repaid in five annual payments. The first two payments are $200. The third and fourth payments are $400. The final payment is $500. The annual effective interest rate is 6%. Determine the interest portion of the third payment.

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Krista Gallegos · Answer 1

Interest portion = 80.2

Explanation:

Present Value of Payments = P=S / (1+i) ^n

P = present Value

S = Future Value

i = Interest

N = time

Amount of third payment = 500

So the Present Value of The 3rd payment is = 500 / (1+6%) ^3 = 419.80

Third installment = 500 this is future value so it contain the interest at 6%

Present Value = 419.8

Time Value of money or Interest = 500-419.8 = 80.2