Question 2 On January 1, 2004 XYZ Companypurchased a building for $200,000 by ex

Question

Question 2

On January 1, 2004 XYZ Companypurchased a building for $200,000 by executing a $200,000 fullyamortizing bank
mortgage with a 10-year term bearing interest at an annual rate of8% compounded monthly. Monthly payments of
principal and interest amounting to $2,426.55 are to be made at theend of each month with the first payment due
January 31, 2004. If XYZ decides to pay off the entire mortgage inMarch, 2004 after just two monthly payments of
$2,426.55 have been made, what amount of principalwould be due?

A)

$195,146.90

B)

$197,342.23

C)

$197,806.28

D)

$198,906.78

E)

$200,000.00

Question 2

Explanation / Answer

Payment 1: Interest = 200000 * .08/12 = 1333.33 Principle = 2426.55 - 1333.33 = 1093.22 Remaining Principle = 200000 - 1093.22 = 198906.78 Payment 2: Interest = 198906.78 * .08 / 12 = 1326.05 Principle = 2426.55 - 1326.05 = 1100.50 Remaining Principle = 198906.78 - 1100.50 = 197806.28 The answer is C.

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