What is the interest payment on $16,000 at 5% interest amortized over 16 months with $1,000 payment per month
16,000 * 0.05 = 800
(800/12) * 16 = ?
This question puzzles me
If you owe $16,000 and your payments are $1000 a month for 16 months, there would be not interest at all.
To find the interest payment on a loan, we can use the formula:
Interest Payment = Total Payment - Principal Payment
First, let's calculate the principal payment per month:
Principal Payment = Total Monthly Payment - Interest Payment
Since the loan is being amortized over 16 months and the total principal is $16,000, the principal payment per month will be:
Principal Payment = $16,000 / 16 = $1,000
Now, let's calculate the interest payment for each month:
For the first month:
Principal balance = Total Principal - Principal Payment = $16,000 - $1,000 = $15,000
Interest Payment = Principal balance * Monthly Interest Rate
Monthly Interest Rate = Annual Interest Rate / 12
Monthly Interest Rate = 5% / 12 = 0.05 / 12 = 0.0041667
Interest Payment = $15,000 * 0.0041667 = $62.50
For the second month:
Principal balance = Previous Principal balance - Principal Payment = $15,000 - $1,000 = $14,000
Interest Payment = Principal balance * Monthly Interest Rate
Interest Payment = $14,000 * 0.0041667 = $58.33
You will need to follow the same process for the remaining 14 months, each time updating the principal balance and calculating the interest payment using the given formula.
So, in this scenario, the interest payment for each month would be as follows:
Month 1: $62.50
Month 2: $58.33
Month 3: ...
Month 4: ...
...
Month 16: ...
Please note that the interest payment will vary each month as the principal balance decreases over time.