A $10,000 loan amortized over 5 years at an interest rate of 10% per year requires payments of $2638 to completely remove the loan when interest is charged on the unrecovered balance of the principal. If interest is charged on the original principal instead of the unrecovered balance, what is the loan balance after 5 years, provided the same $2638 payments are made each year?
What will be an ideal response?
Total amount owed = principal x interest of 10% per year on principal for 5 years
= P + Pni
= 10,000(1 + 5*0.1)
= 10,000(1.50)
= $15,000
Loan balance = Total amount owed – total amount paid
= 15,000 – 5(2638)
= $1810
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