A loan of $49,600 is to be amortized by monthly payments of $1,000. How much principal will be repaid by the first payment if the interest rate is 10.8% compounded monthly?

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Quizplus · Accepted Answer

The interest for the first month is calculated on the initial loan amount. At a 10.8% annual interest rate, compounded monthly, the monthly interest rate is 10.8% / 12 = 0.9%. The interest for the first month is $49,600 * 0.9% = $446.40. Since the total payment is $1,000, the amount that goes towards the principal is $1,000 - $446.40 = $553.60, which rounds to $554.

A Loan of $49,600 Is to Be Amortized by Monthly