Question

You are an average American and currently have $35,000 in personal debt. Let’s say that you have made arrangements to repay this debt over 15 years at 4.8% APR compounded monthly. How much are your regular monthly payments? How much interest will you pay during the first month of the loan when you make the forecasted regular payment amount?

Answer 1

a.

Monthly payment

=

Debt amount / present value of annuity of 1

=

$       35,000

/

128.137

=

$       273.15

Working:

Present value of annuity of 1

=

(1-(1+i)^-n)/i

Where,

=

(1-(1+0.004)^-180)/0.004

i

4.8%/12

=

0.004

=

128.137

n

15*12

=

180

b.

Interest for the first month

=

Loan at the beginning*Monthly interest rate

=

35000*0.004

=

$        140