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A man borrows $10 000 from a bank at 12% per annum compounded monthly.  He repays the...

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christiano-cr7 | Salutatorian

Posted August 25, 2013 at 5:46 PM via web

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A man borrows $10 000 from a bank at 12% per annum compounded monthly.  He repays the bank $2000 at the end of each month.    How much does he still owe the bank just after the second repayment?

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embizze | High School Teacher | (Level 1) Educator Emeritus

Posted August 25, 2013 at 6:01 PM (Answer #1)

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A man borrows $10,000 at 12% annual interest. He makes payments at the end of the month of $2,000. How much does he owe after the second payment?

Begin owing $10,000.

At the end of the first month he owes `10000(1+.12/12)=10,100`

After the payment of $2000 he owes $8,100.

At the end of the second month he owes `8100(1+.12/12)=8,181`

After the $2000 payment he owes $6,181

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Just after the second payment he owes $6,181

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You could create an amortization schedule and find the outstanding principle after the second payment.

If you have a graphing calculator you can use the TVM solver with n=2,I%=12,PV=10000,PMT=-2000, P/Y,C/Y=12, PMT at end and solve for FV.

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