On January 1, Year 1, The Palms borrowed $200,000 to purchase a warehouse by agreeing to an 8%, 5-year note with the bank. Payments of $50,091.29 are due at the end of each year. The first payment will be made on December 31, Year 1. How much will the company still owe on the loan at the end of Year 2? (Round your final answer to the nearest dollar.)

Question

Quizplus · Accepted Answer

At the end of Year 1, The Palms would have made one payment of $50,091.29, leaving a balance of $200,000 - $50,091.29 = $149,908.71

At the end of Year 2, two payments would have been made - one at the end of Year 1 and one at the end of Year 2. The remaining balance from Year 1, $149,908.71, would have accrued interest for a year at 8%, so the interest for the year would be $149,908.71 * 0.08 = $11,992.70.

The total payment for Year 2 would be $50,091.29 + interest ($11,992.70) = $62,083.99.

After making the payment, the remaining balance would be $149,908.71 (balance from Year 1) - $50,091.29 (payment for Year 1) - $11,992.70 (interest for Year 2) - $50,091.29 (payment for Year 2) = $37,733.43

Rounding to the nearest dollar, the company would still owe $129,090 at the end of Year 2. Therefore, the correct answer is (C).

On January 1, Year 1, the Palms Borrowed $200,000 to Purchase