Installment Loan How much of the first Principal $2000.00 payment for the installment loan 18% shown in the table will Term Length 2 years Interest Rate $100.00 Monthly Payment go towards principal? B. $70.00 A. $88.00 D. $30.00 C. $111.00
Installment Loan How much of the first Principal $2000.00 payment for the installment loan 18% shown in the table will Term Length 2 years Interest Rate $100.00 Monthly Payment go towards principal? B. $70.00 A. $88.00 D. $30.00 C. $111.00
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![### Understanding Loan Payments
**Installment Loan Details:**
- **Principal:** $2000.00
- **Term Length:** 2 years
- **Interest Rate:** 18%
- **Monthly Payment:** $100.00
**Question:**
How much of the first payment for the installment loan shown in the table will go towards the principal?
**Options:**
A. $88.00
B. $70.00
C. $111.00
D. $30.00
**Explanation:**
When calculating how much of a payment goes toward the principal, you first need to determine the interest portion of the monthly payment. The interest for the first month can be calculated using the formula:
\[
\text{Monthly Interest} = \left(\frac{\text{Annual Interest Rate}}{12}\right) \times \text{Principal}
\]
Using this information, you can deduct the interest from the total monthly payment to find out how much goes directly towards reducing the principal amount.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F39f724de-00ab-40a2-ba8d-9d46810c9a3b%2F847b782b-afbd-4edb-a77e-4a5da567e644%2F3numfec_processed.jpeg&w=3840&q=75)
Transcribed Image Text:### Understanding Loan Payments
**Installment Loan Details:**
- **Principal:** $2000.00
- **Term Length:** 2 years
- **Interest Rate:** 18%
- **Monthly Payment:** $100.00
**Question:**
How much of the first payment for the installment loan shown in the table will go towards the principal?
**Options:**
A. $88.00
B. $70.00
C. $111.00
D. $30.00
**Explanation:**
When calculating how much of a payment goes toward the principal, you first need to determine the interest portion of the monthly payment. The interest for the first month can be calculated using the formula:
\[
\text{Monthly Interest} = \left(\frac{\text{Annual Interest Rate}}{12}\right) \times \text{Principal}
\]
Using this information, you can deduct the interest from the total monthly payment to find out how much goes directly towards reducing the principal amount.
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