You plan to borrow $35,000 at a 7.5% annual interest rate. The terms require you to amortize the loan with 7 equal end-of-year payments. How much interest would you be paying in Year 2

$2,250

Explanation:

Since terms require you to amortize the loan with 7 equal end-of-year payments, it implies that interest will be paid on the amount outstanding balance for a whole year.

The would be paid in Year 2 can therefore be calculated as follows:

Equal amount of the loan principal = Loan amount / Number of equal end-of-year payments = $35,000 / 7 = $5,000

Loan balance outstanding throughout Year 2 = Loan amount - Year 1 end-of-year payment = $35,000 - $5,000 = $30,000

Year 2 interest payable = Loan balance outstanding throughout Year 2 * Annual interest rate = $30,000 = 7.5% = $2,250.

Therefore, you would be paying $2,250 interest in Year 2.

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