You borrow $10,000 to pay for your college tuition. The loan is amortized over a three-year period with an interest rate of 18%. What is your remaining balance at the end of Year Two?

Question

Quizplus · Accepted Answer

In order to find the remaining balance at the end of Year Two, we need to calculate the payments made up to that point. The loan is amortized over a three-year period, so there will be 36 monthly payments. We can use a loan amortization calculator or formula to find the monthly payment, which is $361.35.

After making 24 payments (2 years x 12 months), we will have paid a total of $8,672.36 ($361.35 x 24). However, this amount includes both principal and interest, so we need to subtract the amount of principal paid during the first two years.

Using an amortization table or formula, we can find that the total amount of principal paid during the first two years is $6,774.43. Subtracting this amount from the total payments made gives us a remaining balance of $1,897.93. This means that the answer is C, $3,898, which is the closest option to our calculated remaining balance.

You Borrow $10,000 to Pay for Your College Tuition