JK's is borrowing $132,000 for three years at an APR of 7.6 percent.The loan calls for the principal balance to be reduced by equal amounts over the life of the loan.Interest is to be paid in full each year.The payments are to be made annually at the end of each year.How much will be paid in interest over the life of this loan?

Question

Quizplus · Accepted Answer

The interest paid each year is calculated on the remaining principal balance. In the first year, the interest is $132,000 * 7.6% = $10,032. In the second year, the principal is reduced by $44,000 (since $132,000/3 = $44,000), so the interest is ($132,000 - $44,000) * 7.6% = $6,688. In the third year, the principal is reduced by another $44,000, so the interest is ($132,000 - $88,000) * 7.6% = $3,344. The total interest paid over the life of the loan is $10,032 + $6,688 + $3,344 = $20,064.

JK's Is Borrowing $132,000 for Three Years at an APR