Larry is repaying a loan with payments of $2,500 at the end of every two years. If the amount of interest in the fourth installment is $2,458, find the amount of principal in the seventh installment. Assume an annual effective interest rate of 13%.

$84

Explanation:

Installment payment = $2,500

Interest in fourth installment = $2,458

Principal in fourth installment = $2,500 - $2,458

Principal in fourth installment = 42

Annual effective interest rate = 13%

With payments made every 2 years

Let P be the outstanding amount at after third installment is paid.

Hence the interest in the fourth installment = outstanding amount after third installment x effective annual interest rate x 2

Hence,

2,458 = P x 0.13 x 2

Hence P = 9,453.87

Using the above calculation. we can prepare an amortization schedule as shown in the table below ( in attached file)

Amount of Principal paid in the 7th installment = $84

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