Question 1083543
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Answer: <font color=red>Choice B) $7,196.37</font>
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Explanation:


Let's walk through each of the three years. 
What I'm focused on are three things
<ul>
<li>the interest paid</li>
<li>the principal paid</li>
<li>the remaining balance</li>
</ul>
The most important is the remaining balance as the last remaining balance (for year 3) will be the final answer.


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Let's start the walk through. Everything but the interest rate are values in dollars.


Year 1:
interest paid = (interest rate in decimal form)*(current balance)
interest paid = (0.03)*(8000)
interest paid = 240
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principal paid = (payment amount) - (interest paid)
principal paid = (500) - (240)
principal paid = 260
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new balance = (old balance) - (principal paid)
new balance = (8000) - (260)
new balance = 7740
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Year 2:
interest paid = (interest rate in decimal form)*(current balance)
interest paid = (0.03)*(7740)
interest paid = 232.2
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principal paid = (payment amount) - (interest paid)
principal paid = (500) - (232.2)
principal paid = 267.8
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new balance = (old balance) - (principal paid)
new balance = (7740) - (267.8)
new balance = 7472.2
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Year 3:
interest paid = (interest rate in decimal form)*(current balance)
interest paid = (0.03)*(7472.2)
interest paid = 224.166
interest paid = 224.17 <font color=blue>round to the nearest penny</font>
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principal paid = (payment amount) - (interest paid)
principal paid = (500) - (224.17)
principal paid = 275.83
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new balance = (old balance) - (principal paid)
new balance = (7472.2) - (275.83)
new balance = <font color=red>7196.37</font>
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The third payment has been made, so we can stop. 
This is why the answer is <font color=red>$7,196.37</font>


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Extra Info (Optional):


If you wish, you can create a table such as this one
<img src = "https://i.imgur.com/coH3fMg.png">
which will display all of the relevant data in a compact format.
Each of the values in the table can be found above (in the walkthrough). 
Take note how columns B and C add up to the payment ($500)
The answer is highlighted. 
The table was created with Microsoft Excel but other alternatives (such as the spreadsheet program from OpenOffice or LibreOffice) will get the job done as well.

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