Question

I need the answer to question number 7. It is based on Question number 5.

5. A business takes out a 10-year loan for $250,000 at 5.3% interest compounded monthly. What is the formula to calculate the monthly payment and what is the resulting value?

Answer is:   $2688.69

I need the following below to be answered based on what is above:

7. For the loan conditions in question 5, calculate the total cost of the loan in terms of the total interest paid through the l0 years of the loan.

Thank you.

Answer 1

Given about a loan,

Loan amount PV = 4250000

interest rate = 5.3% compounded monthly

loan period = 10 years

So, Monthly loan payment can be calculated using PV formula of annuity,

PMT = PV*(r/n)/(1 - (1+r/n)^(-n*t)) = 250000*(0.053/12)/(1 - (1+0.053/12)^(-12*10)) = 2688.45

So, Monthly loan payment = $2688.45

7). Total interest paid on the loan = Total amount payment - principal

Total amount paid = Monthly payment * number of period = 2688.45*12*10 = $322613.84

So, Interest on the loan = 322613.84 - 250000 = $72613.84