Angela borrowed $5,000 for five years at an APR of 6.2 percent.The loan calls for equal,annual principal payments.Interest will also be paid annually.What will be her loan payment in Year 2?

Question

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The correct answer is A.The loan payment in Year 2 will be $1,248. This is because the loan is for five years, so the principal will be paid off in five equal payments of $1,000 each. The interest will be paid on the remaining balance, which will be $4,000 at the beginning of Year 2. The interest for Year 2 will be $4,000 x 0.062 = $248. The total loan payment for Year 2 will be $1,000 + $248 = $1,248.

Angela Borrowed $5,000 for Five Years at an APR of 6.2