If a person owes $50,000 at 10 percent and annually pays $10,000, the loan will be retired in 5 years.

Question

If a person owes $50,000 at 10 percent and annually pays $10,000, the loan will be retired in 5 years.​

Quizplus · Accepted Answer

If a person owes $50,000 at 10 percent and annually pays $10,000, the loan will not be retired in 5 years. The amount of the loan that is retired each year is $10,000, but the remaining balance still accumulates interest at the rate of 10 percent. Using a formula to calculate the time it takes to pay off a loan with regular payments, known as the amortization formula, it can be determined that it would take about 6 years to pay off the loan in this scenario.

If a Person Owes $50,000 at 10 Percent and Annually