On 1 December 2017,Fine Products borrowed $84,000 on a 5%,10-year note with annual instalment payments of $8400 plus interest due on 1 December of each succeeding year.Which of the following describes the first instalment payment made on 1 December 2018?
A)$8400 principal plus $420 interest
B)$4200 interest only
C)$8400 principal plus $8400 interest
D)$8400 principal plus $4200 interest

Question

Quizplus · Accepted Answer

The first instalment payment made on 1 December 2018 consists of both principal and interest. To calculate the interest for the first year, we need to use the formula:

Interest = (Principal x Rate x Time) / 100

where Rate = 5% and Time = 1 year

Therefore, Interest = (84,000 x 5 x 1) / 100 = 4,200

So, the first instalment payment will be:

Principal = 8,400 (as given in the question)
Interest = 4,200

Hence, the correct choice is D.

On 1 December 2017,Fine Products Borrowed $84,000 on a 5%,10-Year