An $80,000 loan is amortized by monthly payments over 25 years. The interest rate charged is 10% compounded semiannually.
-What will the principal balance be after three years?

Question

Quizplus · Accepted Answer

The correct answer is A because the principal balance after three years is $77,400.72. This can be calculated using the formula for the principal balance of an amortized loan:$$B = P(1 - (1 + r/m)^(-mt))$$where:* B is the principal balance* P is the original loan amount* r is the annual interest rate* m is the number of compounding periods per year* t is the number of yearsIn this case, we have:* P = $80,000* r = 10%* m = 2 (since the interest is compounded semiannually)* t = 3Plugging these values into the formula, we get:$$B = 80000(1 - (1 + 0.1/2)^(-2*3)) = 77400.72$$

An $80,000 Loan Is Amortized by Monthly Payments Over 25