Trek Company signed a 9%, 10-year note for $150,000. The company paid $1,900 as the installment for the first month. After the first payment, what is the updated principal balance?

Question

Quizplus · Accepted Answer

To calculate the updated principal balance, we first need to find out the portion of the first payment that goes towards the principal and the portion that goes towards the interest:

Interest paid = (Principal balance x Annual interest rate)/12 months

Interest paid = ($150,000 x 0.09)/12 = $1,125

Principal paid = Total payment - Interest paid

Principal paid = $1,900 - $1,125 = $775

The updated principal balance is the original principal amount minus the principal paid:

Updated principal balance = $150,000 - $775 = $149,225

Therefore, the correct answer is C.

Trek Company Signed a 9%, 10-Year Note for $150,000