The Summer Breeze Hotel borrowed $100,000 from the Meadowlands Bank to pay for a new air conditioning system. The loan is for a period of 5 years at an interest rate of 10% and requires 5 equal end-of-year payments that include both principal and interest on the outstanding balance. What will be the outstanding balance after the third payment?
A) $60,000
B) $20,865
C) $45,788
D) $50,866

Question

Quizplus · Accepted Answer

The outstanding balance after the third payment is $45,788. This is because the loan is for a period of 5 years at an interest rate of 10% and requires 5 equal end-of-year payments that include both principal and interest on the outstanding balance. The total amount of interest paid over the life of the loan is $50,000, and the total amount of principal paid over the life of the loan is $50,000. The outstanding balance after the third payment is the original loan amount of $100,000 minus the total amount of principal paid over the first three years, which is $30,000.

The Summer Breeze Hotel Borrowed $100,000 from the Meadowlands Bank