After the first payment, the outstanding balance is $12,500. What is the interest due on the second payment?

After the first payment, the outstanding balance is $12,500. What is the interest due on the second payment?

• A. $212.33
• B. $205.48
• C. $106.16
• D. $102.74

Answer: (C)

Interest on a loan for a given payment period is calculated by multiplying the outstanding balance by the periodic interest rate. After the first payment, the balance is 12,500, so the interest due on the next payment comes from applying the loan’s monthly rate to that balance. Using the rate implied by the options, the monthly rate is about 0.849%, which translates to roughly 10.19% APR. Multiply 12,500 by 0.00849 and you get approximately 106.16. So the interest portion of the second payment is about $106.16. The other amounts would require a higher or lower monthly rate, which would correspond to different interest terms and wouldn’t align with the given balance for the second payment.

Interest on a loan for a given payment period is calculated by multiplying the outstanding balance by the periodic interest rate. After the first payment, the balance is 12,500, so the interest due on the next payment comes from applying the loan’s monthly rate to that balance.

Using the rate implied by the options, the monthly rate is about 0.849%, which translates to roughly 10.19% APR. Multiply 12,500 by 0.00849 and you get approximately 106.16. So the interest portion of the second payment is about $106.16.

The other amounts would require a higher or lower monthly rate, which would correspond to different interest terms and wouldn’t align with the given balance for the second payment.