Math

posted by .

John Receive a 10,000 loan, with an interest rate of 6 %, for 6 years.

What is the total amount of interest paid to the bank?

  • Math -

    The formula for calculating a monthly loan payment is R = Pi/[1 - 1/(1+i)^n] where R = the periodic payment, P = the principal, or debt to be paid off, n = the number of payment periods over which the payments will take place, and i = the periodic interest rate in decimal form. The interest rate for a loan is usually quoted as an annual rate such as 8%. In the formula the first thing we do is convert this to i = .08 when considering annual payments.
    If payments are to be made monthly, i = .08/12 = .006666 as the monthly interest rate. An example will illustrate the use of the formula.
    Lets say you want to borrow $10,000 for a home improvement, to be paid off monthly over a period of 5 years, with an annual interest rate of 8%. So P = 10,000, n = 5 x 12 = 60, i = .08/12 = .006666. Then we have R = 10000(.006666)/[1 - 1/(1+.006666)^60] = 66.66/[1 - 1/(1.489790] = 66.66/.328764 = $202.76 per month. Over the life of the loan you will pay $12,165.49 back to the bank thereby incurring the cost of $2,165.49 for the priviledge of borrowing the money.

    Typically, loan, or mortgage payments, the interest compounding periods and loan payment periods are the same but can be different, depending on the rules of the lending institution. For instance, if the quoted loan interest rate is 8%, the interest is compounded quarterly, and the loan payments are monthly, one must convert the nominal annual rate to an annual effective rate which is then combined with the rate for the payment periods stated. For instance, given the 8%, compounded quarterly results in (1.02)^4 = 1.0824 annual effective rate, the monthly rate applied to the loan payment calculation is .0824/12 = .006866.

    This should be suffic1ent for you to solve your specific problem.

  • Math -

    what is the apr if the amount Financed $3500; Interest Charged $ 675; Number of Payments 24

Respond to this Question

First Name
School Subject
Your Answer

Similar Questions

  1. - Math

    John Receive a 10,000 loan, with an interest rate of 6 %, for 6 years. What is the principal amount paid on the 6th through 9th payments?
  2. Math

    John Receive a 10,000 loan, with an interest rate of 6 %, for 6 years. What is the interest amount paid on the 5th payment?
  3. Math

    John Receive a 10,000 loan, with an interest rate of 6 %, for 6 years. What is the principal amount paid on the 1st payment?
  4. Math

    John Receive a 10,000 loan, with an interest rate of 6 %, for 6 years. What is the loan's monthly payment amount?
  5. Finance

    Rancher Rick purchased an additional 80 acres of hay ground to produce hay for his Angus herd. He paid $700/acre. He paid $20,000 down and took out a 10 year loan with interest calculated using add-on interest for the rest of the cost …
  6. math

    rick borrows 48,000 the loan will be a 10% add-on loan interest will be charged for 2 full years, rick will repay on monthly basis what will the total amount of interest paid,what will be the monthly amount paid,what is true rate interest …
  7. Math

    Suppose you borrowed $25,000 for a car at an APR of 8%, which you are paying off with monthly payments of $510 for 5 years. a) What’s the loan principal?
  8. Maths

    Calculate the total amount (loan and interest)to be paid on a loan of N1 000.00, borrowed for 2 years at a simple interest rate of 10% p.a.
  9. MATH 123

    Darla purchased a new car during a special sales promotion by the manufacturer. She secured a loan from the manufacturer in the amount of $23,000 at a rate of 4.6%/year compounded monthly. Her bank is now charging 6.2%/year compounded …

More Similar Questions