Question

Edward took out a loan of $2,753 today at a monthly interest rate of 4%. How much interest will accrue after 6 years on his loan? Round to the nearest whole number.

Hint: 1) note that the compounding frequency is monthly; 2) note that you are asked to solve for interest amount only.

Answer 1

Information provided:

Present value (PV)= $2,753

Time (N)= 6 years*12 = 72 months

Interest rate (I/Y)= 4%/12 = 0.3333% per month

The question is solved by first calculating the amount of monthly payment.

Enter the below in a financial calculator to compute the monthly payment:

PV= -2,753

N= 72

I/Y= 0.3333

Press the CPT key and PMT to compute the monthly payment.

The value obtained is 43.07.

Therefore, the monthly payment is $43.07.

Interest accrued:

= ($43.07*72) - $2,753

= $3,101.04 - $2,753

= $348.04.

     

In case of any query, kindly comment on the solution.