What is the balance after the third payment?

Question

You borrow $2000 from the bank at 1% annual interest compounded monthly. The monthly payment is $100

Answer 1

The easiest way to work this problem is with an amortization table

 

Interest = Outstanding Balance of previous period * per period interest rate, where per period interest rate = .01/12 and Principal repayment  = Monthly Payment - Interest

 

 

Period   Outstanding Balance    Principal Repayment    Interest    Monthly Payment

0            $2000

1            $1901.6667                     $98.3333              $1.6667                 $100

2            $1803.2514                     $98.4153              $1.5847                 $100

3            $1704.7541                     $98.4973              $1.5027                 $100

 

Balance after third payment is $1704.7541