You borrow $50,000 on a line of credit to finance your start-up company, to be repaid in three equal, annual payments.Interest on the line of credit is 10% interest.Approximately how much of the principal is paid off on the first payment?
A)$5000.00
B)$16,666.67
C)$15,105.74
D)$20,105.74

Question

Quizplus · Accepted Answer

The total interest paid over three years would be $15,000 ($50,000 x 10% x 3 years). Therefore, the total amount to be repaid is $65,000 ($50,000 + $15,000). Each of the three equal payments would be $21,666.67 ($65,000 ÷ 3).

To calculate the amount of principal repaid in the first payment, we need to subtract the interest portion of that payment from the total payment. The interest portion would be $5,000 ($50,000 x 10%), leaving $16,666.67 ($21,666.67 - $5,000) to be applied to the principal.

Therefore, approximately $15,105.74 of the principal would be paid off on the first payment, as this is 90% of $16,666.67. Keep in mind that this is an approximation, as the interest portion of each payment would change based on the remaining principal balance.

You Borrow $50,000 on a Line of Credit to Finance