Independent solution

How to solve this Loan Balances and Amortization question

Setup

Setup

Convert the annual effective rate to the equivalent monthly effective rate.

j=(1.08)1/12−1j=(1.08)^{1/12}-1

Model

Model

Successive principal portions of a level-payment loan increase by the monthly accumulation factor.

Pk+m=Pk(1+j)mP_{k+m}=P_k(1+j)^m

Compute

Compute

There are 18 steps from payment 6 to payment 24, so the principal portion is 673.4214.

P24=600(1+j)18=673.42135398P_{24}=600(1+j)^{18}=673.42135398

Answer

Answer

The principal in payment 24 is approximately 673, selecting choice B.

P24≈673(B)\boxed{P_{24}\approx673\quad\text{(B)}}