Nyasha used the Quantitative Reasoning Process to create a plan to pay off his student loans of $5,480. The interest rate on his loan is 1.9% annually and he plans to make monthly payments of $95.81 for 5 years. Complete months 1 and 2 of the amortization table below. Month Beginning Balance Payment: To Interest Payment: To Principal Ending Balance1 2 ?? 3 How much of Nyasha's payment goes to Interest in Month 2?(Round your FINAL answer to the nearest cent. Do not include the dollar sign.)
Question
Nyasha used the Quantitative Reasoning Process to create a plan to pay off his student loans of 95.81 for 5 years. Complete months 1 and 2 of the amortization table below. Month Beginning Balance Payment: To Interest Payment: To Principal Ending Balance1 2 ?? 3 How much of Nyasha's payment goes to Interest in Month 2?(Round your FINAL answer to the nearest cent. Do not include the dollar sign.)
Solution
To calculate the interest payment for each month, we use the formula:
Interest Payment = Beginning Balance * (Annual Interest Rate / 12)
For Month 1:
Beginning Balance = $5,480 Annual Interest Rate = 1.9% = 0.019 (in decimal form)
Interest Payment for Month 1 = 8.66
The principal payment is then calculated by subtracting the interest payment from the total monthly payment:
Principal Payment = Total Monthly Payment - Interest Payment
Principal Payment for Month 1 = 8.66 = $87.15
The ending balance is then calculated by subtracting the principal payment from the beginning balance:
Ending Balance = Beginning Balance - Principal Payment
Ending Balance for Month 1 = 87.15 = $5,392.85
For Month 2, we repeat the same process:
Beginning Balance = $5,392.85 Annual Interest Rate = 1.9% = 0.019 (in decimal form)
Interest Payment for Month 2 = 8.52
So, $8.52 of Nyasha's payment goes to interest in Month 2.
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