Question

A college student foolishly uses student loan money to buy a really cool TV for $2500. The student loan has an interest rate of 2.9% compounded monthly. The life of the student loan is 20 years. How much will the TV cost the foolish student if payments are made every month for 20 years?

Group of answer choices:

$3333.33

$2500.00

$3297.60

$797.60

$4287.50

Answer 1

Given,

Loan amount = $2500

Interest rate = 2.9% or 0.029

Life of loan = 20 years

Solution :-

Monthly interest rate (r) = 0.029/12 = 0.00241666666

No. of months (n) = 20 years x 12 = 240

Monthly payment = (Loan amount x r) [1 - (1 + r)^-n]

= ($2500 x 0.00241666666) [1 - (1 + 0.00241666666)^-240]

= ($6.04166666) [1 - (1.00241666666)^-240]

= $6.04166666 [1 - 0.56029026894]

= $6.04166666 0.43970973106 = $13.74

Now,

Cost of TV = Monthly payment x number of months

= $13.74 x 240 = $3297.60