Question

Lionel received a $33,950 loan from a bank that was charging interest at 4.50% compounded semi-annually.

a. How much does he need to pay at the end of every 6 months to settle the loan in 4 years?

Round to the nearest cent

b. What was the amount of interest charged on the loan over the 4-year period?

Round to the nearest cent

Answer 1

a). Calculating the amount of payment at the end of every 6 months:-

Where, P= Loan Amount = $33,950

r = Periodic Interest rate = 4.50%/2 = 2.25%

n= no of periods = 4 years*2 = 8

Payments = $4684.58

So, he need to pay at the end of every 6 months to settle the loan in 4 years is $4684.58

b). Calculating the amount of Interest charged over the loan:-

Interest amount = (Payments *No of Payments) - Loan Amount

= ($4684.58*8) - $33,950

=$37476.64 - $33,950

= $3526.64

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