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18 September, 10:12

A 20-year loan of 2,500 is repaid with payments at the end of each year. Each of the first ten payments equals 175% of the amount of interest due. Each of the last ten payments is X. The lender charges interest at an annual effective rate of 5%. Calculate X

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  1. 18 September, 10:13
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    The answer is 156.25

    Explanation:

    In the 1st year:

    - Interest: 2,500 x 5% = 125

    - Payment amount: 125 x 175% = 218.75

    - Principal: 218.75 - 125 = 93.75

    Hence, the principal payment in 20 year loan as follow:

    10 x 93.75 + 10 x X = 2,500

    => X = 156.25
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