Question

ABC borrowed $236,000 at an annual interest rate of 11 percent. The terms of the loan...

ABC borrowed $236,000 at an annual interest rate of 11 percent. The terms of the loan required ABC to make quarterly payments and to completely amortize the loan over five years. Assuming ABC made the payments as agreed, how much total interest did ABC pay over the life of the loan? Please show all work.

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Answer #1

The amount that ABC has borrowed will be paid in equal quarterly installments over 5 years. This means there are 20 payments (=5 year * 4 Quarters per year).

So, this would be an annuity with 20 payments, PV = $236,000 and rate = 11%/4 (since it is a quarterly paid annuity). We need to calculate the amount being paid as annuity, which we could do by using the formula to calculate PV of annuity.

PV =

P = $15,498.53

Total Interest Paid = Total Amount Paid Back - Principal Amount

Total interest Paid = (15,498.53 * 20) - 236,000 = $73,970.57

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