Question

On December 1, 2018, Garden Products borrowed $92,000 on a 5%, 10-year note with annual installment payments of $9,200 plus interest due on December 1 of each subsequent year. Which of the following describes the first installment payment made on December 1, 2019? (Round your answer to the nearest whole number O A. $4,600 interest only O B. $9,200 principal plus $460 interest O C. $9,200 principal plus $4,600 interest O D. $9,200 principal plus $9,200 interest

Answer 1

C. $9,200 principal plus $4,600 interest

Step-by-step explanation:

For computing the first installment payment, first, we have to compute the interest amount because the first installment is a sum of a principal + interest. So, the interest would be

= Borrowed amount × rate

= $92,000 × 5%

= $4,600

So, the first installment would be

= Principal + interest

= $9,200 + $4,600

= $13,800

The 10-year time duration is ignored because we have to compute for December 1 and the same date is given in the question in which the annual installment payment is due. Hence, it is not considered in the computation part.