Question

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:

Answer 1

We can find the answer using 3 steps.

Step 1: Find the monthly payment using the present value of the annuity formula:

Where,
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,

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

= $5,971.80

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

=  $671.80