A loan is amortized with level monthly payments at an annual effective interest rate of 10%. The amount of principal repaid in the 6th month is 500.

Calculate the principal repaid in the 30th month.

• 500
• 555
• 605
• 705
• 805

Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.

Solution: C

Each month the principal paid increases by 1.1^1/12. Thus, the amount of principal paid increases to 500(1.1^1/12)^30-6=5001.1²=605.

Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.