A 20-year loan of 2,500 is repaid with payments at the end of each year. Each of the first ten payments equals 175% of the amount of interest due. Each of the last ten payments is X. The lender charges interest at an annual effective rate of 5%. Calculate X

The answer is 156.25

Explanation:

In the 1st year:

- Interest: 2,500 x 5% = 125

- Payment amount: 125  x 175% = 218.75

- Principal: 218.75 - 125 = 93.75

Hence, the principal payment in 20 year loan as follow:

10 x 93.75 + 10 x X = 2,500

=> X = 156.25

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