Sheet Metals has an outstanding loan that calls for equal annual payments of $12,600.47 over the life of the loan. The original loan amount was $72,000 at an APR of 8.15 percent. How much of the third loan payment is interest? A) $5,868.00B) $4,725.89C) $4,896.48D) $5,009.16E) $4,687.53

option (B) $4,725.89

Explanation:

Given:

Annual payment = $12,600.47

Principal amount = $72,000

Interest rate = 8.15% = 0.815

Now,

Principal amount paid = Annual payment - Interest paid

and,

Interest paid = Principle * interest rate

Balance = Principal amount - principal paid

Thus,

For year 1

Interest paid = 72000 * 0.815 = $5,868

Principal amount paid = $12600.47 - $5,868 = $6732.46

Principal remaining = $72,000 - $6732.46 = $65257.53

For year 2

Interest paid = principal remaining * Interest rate

Interest paid = $65257.53 * 0.815 = $5319.30

Principal amount paid = $12600.47 - $5319.30 = $7281.17

Principal remaining = $72,000 - $7281.17 = $57986.36

For year 3

Interest paid = principal remaining * Interest rate

Interest paid = $57986.36 * 0.815 = $4725.89

Year Annual payment interest paid principal paid Balance

1 $12600.47 $5,868 $6732.46 $65257.53

2 $12600.47 $5319.30 $7281.17 $57986.36

3 $12,600.47 $4725.89

Hence,

the correct answer is option (B) $4,725.89