You just borrowed $12,750 from the bank to use in your business. The loan terms require you to pay the interest annually with the entire principle due in six years. The interest rate is 8.95%. How much will you pay to the bank in year five of the loan?

Answer:

Loan amount = $12,750

As you will pay only Annual Interest payment and entire principal will be repaid in 6 year(i.e., at year end 6)

Annual Interest payment = Loan amount*Interest rate

Annual Interest payment = $12750*8.95%

Annual Interest payment = $1141.125

So, the amount pay to the bank in year five of the loan is $1141.13

Note- till year end 5 only Interest payment will occur annually