Question

John Fare purchased $24,000 worth of equipment by making a $4000 down payment and promising to pay the remainder of the cost in semiannual payments over the next 5 years. The interest rate on the debt is 10%, compounded semiannually. Find the following. (Round your answers to the nearest cent.) (a) the size of each payment $ (b) the total amount paid over the life of the loan $ (c) the total interest paid over the life of the loan $

Answer 1

Loan amount = 24000 - 4000 =	20000
n = Number of semi annual payment = 5 * 2 =	10
r = Semi-annual rate = 10%/2 =	5%
(a)
Size of each payment = Loan amount / ( (1-(1+r)^-n)/r ) = 20000 / ( (1-(1+5%)^-10)/5% ) =	2590.09
(b)
Total amount paid over the life of the loan = Size of each payment * n = 2590.09 * 10 =	25900.90
(c)
Total interest paid over the life of the loan = Total amount paid over the life of the loan - Loan amount = 25900.90 - 20000 =	5900.90