Lou Lewis borrows $10,000 to be completely repaid over 10 years at 8%. Repayment of principal in the first year is ________.

Question

Quizplus · Accepted Answer

The repayment of principal in the first year can be calculated using the amortization formula or an amortization table. However, a simpler approach to understand this without detailed calculations is recognizing that in an amortization schedule, payments are fixed and part of each payment goes towards interest while the remaining goes towards the principal. The interest for the first year on a $10,000 loan at 8% is $800 (8% of $10,000). If we assume the total payment for the year is more than the interest (which it should be to pay down the principal), and given the options provided, the only option that, when added to $800, would result in a typical annual payment for such a loan is $690. This is because the total annual payment must cover both the interest and some of the principal.

Lou Lewis Borrows $10,000 to Be Completely Repaid Over 10