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4 May, 17:52

On January 1, Year 1, Mahoney Company borrowed $175,000 cash from Sun Bank by issuing a 5-year, 8% term note. The principal and interest are repaid by making annual payments beginning on December 31, Year 1. The annual payment on the loan equals $40,900. What is the amount of principal repayment included in the payment made on December 31, Year 1?

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  1. 4 May, 20:07
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    The answer is $26,900

    Explanation:

    The interest payment on $175,000 principal is:

    8% x $175,000

    $14,000

    At the end of each year, both principal and interest payment will be paid.

    The total payment for December 31, Year 1 is $40,900. Meaning this contains both the principal and interest payment.

    So in the light of the above, the principal out of this money will be:

    Total amount paid minus interest paid.

    $40,900 - $14,000

    =$26,900
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