Giovanna will be borrowing $150,000 today to open her own business, and she will pay it back with 20 yearly payments starting one year from today. If the effective annual interest rate is 8%, how much will the final payment be if the amount of principal reduced each year is constant

$8,100

Explanation:

Following is the table that will we used to compute last payment made:

  Op, Principal  Principal Repayment   Interest    Cl. Principal

1  150,000                     7,500                   12,000        142,500

2  142,500                    7,500                    11,400         135,000

3  135,000                    7,500                   10,800         127,500

4  127,500                     7,500                  10,200         120,000

5  120,000                    7,500                    9,600         112,500

6  112,500                     7,500                    9,000         105,000

7  105,000                    7,500                     8,400          97,500

8  97,500                      7,500                    7,800          90,000

9  90,000                      7,500                     7,200         82,500

10  82,500                     7,500                     6,600         75,000

11  75,000                      7,500                     6,000         67,500

12  67,500                     7,500                     5,400         60,000

13  60,000                     7,500                     4,800         52,500

14  52,500                     7,500                     4,200          45,000

15  45,000                     7,500                     3,600          37,500

16  37,500                     7,500                      3,000         30,000

17  30,000                     7,500                      2,400        22,500

18  22,500                     7,500                      1,800         15,000

19  15,000                      7,500                      1,200          7,500

20  7,500                       7,500                        600              -  

Here  

Closing Principal  = Opening Principal - Principal Repayment

The last final payment would be:

Final Payment = Last Principal Repayment Amount   +   Last Interest Payment

Now the values from the above table are given as under:

Last Principal Repayment Amount is $7,500

Last Interest Payment is $600

By putting values in the above equation, we have:

Final Payment = $7,500   +  $600  = $8,100

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