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Davis Corporation borrowed $50,000 on January 1, Year 1. The loan is for a 5-year period and has an annual interest rate of 9%. At the end of each year, Davis will make a payment of $7,791, which includes both principal and interest. The amount of the payment for Year 1 that is interest expense is $4,500. Group startsTrue or False

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The amount of the payment for Year 1 that is interest expense is $4,500.

The interest paid on loan is a function of the interest rate and the amount borrowed. In order to determine the interest paid, the interest rate would be multiplied by the amount borrowed.

Interest = interest rate x amount borrowed

  • interest rate = 9%
  • amount borrowed = $50,000

9% x $50,000

0.09 x $50,000 = $4,500

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