Question

You've just bought a new flat-screen TV for 4,000 and the store you bought it from offers to let you finance the entire purchase at an annual rate of 14 percent compounded monthly. If you take the financing and make monthly payments of $120, how long will it take to pay off the loan? How much will you pay in interest over the life of the loan?

Answer #1

**Answer:**

Amount borrowed = $4,000

Monthly payment = $120

Annual interest rate = 14.00%

Monthly interest rate = 14.00% / 12

Monthly interest rate = 1.1667%

Let it will take n monthly payment to pay off the loan

$4,000 = $120 * PVIFA(1.1667%, n)

Using financial calculator:

I = 1.1667%

PV = 4000

PMT = -120

FV = 0

N = 42.5

Number of months = 42.5

Number of years = 42.5 / 12

**Number of years = 3.54**

Total amount paid = 42.5 * $120

Total amount paid = $5,100

Total interest = Total amount paid - Amount borrowed

Total interest = $5,100 - $4,000

**Total interest = $1,100**

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