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Homework answers / question archive / A $200,000 loan amortized over 11 years at an interest rate of 10% per year requires payments of $21,215
A $200,000 loan amortized over 11 years at an interest rate of 10% per year requires payments of $21,215.85 to completely remove the loan when interest is charged on the unrecovered balance of the principal. If interest is charged on the original principal instead of the unrecovered balance, what is the loan balance after 11 years provided the same $21,215,85 payments are made each year?
Answer:
Given that;
Loan over 11 years is $200,000
Interest rate is 10%
Required payment is $21,215.85
Interest per year;
The interest per year can be determined as follows:
Interest per year = Loan amount*Interest rate
= 200,000*0.1
= 20,000
Therefore, the interest per year is $20,000
Payment to principal amount;
The payment to principal amount can be determined as follows:
Payment to principal amount = Required payment— Interest per year
=21,215.85-20,000
=1,215.85
Therefore, the principal amount is $1,215.85
Principal amount repaid in 11 years;
The principal amount repaid in 11 years can be determined as follows:
Principal amount repaid in 11 years=Principal amount*Number of years.
=1,215.85*11
=13,374.35
Therefore, the principal amount repaid in 11 years is $13,374.35
Loan balance after 11 years;
The loan balance after 11 years can be determined as follows:
Loan balance after 11 years = Initial loan amount—Principal repaid in 11 years.
= 200,000-13,374.35
=186,625.65
Therefore, the loan balance after 11 years is
$186,625.65
