Question 1084256: Debbie borrows $1,000,000 for real estate development and makes annual interest only payments for three years at a rate of 7.5% per year. What is her total interest payment over the three year period?
Answer by Theo(13342)   (Show Source):
You can put this solution on YOUR website! the remaining balance is 1,000,000.
the interest on the loan is 7.5% per year.
.075 * 1,000,000 = 75,000 a year.
3 * 75,000 = 225,000 interest payments total in 3 years.
the remaining balance on the loan remains the same since she did not do anything to reduce the principal.
the year by year analysis is:
beginning of year 1 she owes 1,000,000
end of year 1 she owes .075 * 1,000,000 = 1,075,000
she makes a payment of 75,000, so she owes 1,000,000
end of year 2 she owes .075 * 1,000,000 = 1,075,000
she makes a payment of 75,000, so she owes 1,000,000
end of year 3 she owes .075 * 1,000,000 = 1,075,000
she makes a payment of 75,000, so she owes 1,000,000
her total interest payment over the 3 years is 3 * 75,000 = 225,000.
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