Question

Problem I) Determine the monthly payment required if you want to borrow $30,000 from a

bank to buy a car, at 6%/year nominal interest, for 6 years.

Problem 2) For the previous car loan, when you handed the bank your check for the 24th

monthly payment, how much of that check was for interest, and how much went toward

reducing what you owed on the car (principal reduction)?

Problem 3) How much total interest over the life of the loan will you end up paying

for the previous car loan?

Answer 1

Problem I)

a: $30,000, the amount of the loan

r: 0.005 (6% annual rate—expressed as 0.06—divided by 12 monthly payments per year)

n: 72 (12 monthly payments per year times 6 years)

Calculation: 30,000/{[(1+0.005)72]-1}/[0.005(1+0.005)72]= 497.19,

So Monthly payment    = $ 497.19

Problem 2)

for 24th loan payment out of monthly payment $497.19, interest portion is $107.80

Problem 3)

  

	Total payment                          =	497.19*72     =	35797.68
Less	Princple amount of Loan =		30000.00
	Amount of total Interest =		5797.68