Fritz Benjamin buys a car costing $5300.He agrees to make payments at the end of each monthly period for 5 years. He pays 4.8% interest, compounded monthly. What is the amount of each payment? Find the total amount of interest Fritz will pay.
Fritz's monthly payment:
Total amount of interest he will pay:
We can find the answer using 3 steps.
Step 1: Find the monthly payment using the present value of the annuity formula:
PVA = Present value of the annuity
A =Monthly payment
i = Interest rate in decimal form
a = Number of payments in a year
n = Number of years
Therefore, the monthly payment is $99.53.
Step 2: Find the total amount paid over the life of the loan.
Total amount paid = Monthly payment * Total number of payments.
= $99.53 * (5*12)
= $99.53 * 60
Step 3: Total amount of interest he will pay.
The total amount of interest = Total amount paid - Amount of the loan.
= $5,971.80 - $5,300.00
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