Question

Fritz Benjamin buys a car costing $20,100. He agrees to make payments at the end of each monthly period for 6 years. He pays 4.8% interest, compounded monthly

(a) What is the amount of each payment?

(b) Find the total amount of interest Fritz will pay.

Answer #1

a) | |||||||

EMI = [P x R x (1+R)^N]/[(1+R)^N-1] | |||||||

Where, | |||||||

EMI= Equal Monthly Payment | |||||||

P= Loan Amount | |||||||

R= Interest rate per period =4.8%/12 =0.40% | |||||||

N= Number of periods =6*12 =72 | |||||||

= [ $20100x0.004 x (1+0.004)^72]/[(1+0.004)^72 -1] | |||||||

= [ $80.4( 1.004 )^72] / [(1.004 )^72 -1 | |||||||

=$321.85 | |||||||

b) | Total payment = $321.85*6 years *12 | ||||||

=$23173.04 | |||||||

Interest paid = $23173.04-20100 | |||||||

=$3073.04 | |||||||

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