John Doeber borrowed $150,000 to buy a house. His loan cost was 6% and he promised to repay the loan in 10 equal annual payments. What is the principal outstanding after the first loan payment?

Question

Quizplus · Accepted Answer

PV_A = A × PV_IFA (App. D: 6%, 10 periods) = $150,000/7.360 = $20,380 Annual Payment − Interest = Amount to be applied to principal $20,380 − (0.06 × $150,000) = $11,380 Outstanding principal at end of year 1 = Loan − Payment to principal = $150,000 − $11,380 = $138,620

John Doeber Borrowed $150,000 to Buy a House