You plan to borrow $40,000 at a 6% annual interest rate. The terms require you to amortize the loan with 7 equal end-of-year payments. How much interest would you be paying in Year 2

You plan to borrow $40,000 at a 6% annual interest rate. The terms require you to amortize the loan with 7 equal end-of-year payments. How much interest would you be paying in Year 2

Answer:Interest for second year $2,114.08Explanation:given dataloan Amount = $40,000.00

Interest rate r = 6.00%

time period t = 7

solutionwe get here first Equal Monthly Payment EMI that is express as

EMI = [tex]\frac{P \times r \times (1+r)^t}{(1+r)^t-1}[/tex] …………….1

here P is Loan Amount and r is rate and t is time period

put here value and we get

EMI = [tex]\frac{40000 \times 0.06 \times (1+0.06)^7}{(1+0.06)^7-1}[/tex]

EMI = $7165.40now

we get here interest for second year that is

Closing balance at year 1 = opening balance + Interest – EMI Payment

Closing balance at year 1 = $40,000 + $2400 – $7165.40

Closing balance at year 1 = $35234.60

so Interest for second year $2,114.08