On December 1, 2015, Fine Products borrowed $80,000 on a 4%, 8-year note with annual installment payments of $10,000 plus interest due on December 1 of each succeeding year. Which of the following describes the first installment payment made on December 1, 2016?

Question

Quizplus · Accepted Answer

The first installment payment will include both principal and interest.

To find the amount of interest due on the first payment, we first need to calculate the outstanding balance on the loan after one year of payments.

The principal portion of the first payment will be $10,000, which means the outstanding balance will be $70,000 ($80,000 - $10,000).

To calculate the interest due, we multiply the outstanding balance by the interest rate of 4%:

$70,000 x 0.04 = $2,800

This means the first installment payment will consist of $10,000 principal plus $2,800 interest, for a total of $12,800.

Therefore, the best choice is A: $10,000 principal plus $3,200 interest.

On December 1, 2015, Fine Products Borrowed $80,000 on a 4