Question

Barry wants to take out a loan from his bank for $1,000 to buy a bicycle. The interest rate on the loan from the bank is 9%. He wants to pay the total amount in 3 monthly payments. What is the amount that Barry would pay in interest for his loan?

Answer 1

The amount that Barry would pay in interest for his loan is $15.05.

Explanation:

To calculate this, we first calculate the monthly required fixed payment using the formula for calculating loan amortization as follows:

P = (A * (r * (1 + r)^n)) / (((1+r)^n) - 1) .................................... (1)

Where,

P = Monthly required fixed payment = ?

A = Loan amount = $1,000

r = monthly interest rate = 9% / 12 = 0.09 / 12 = 0.0075

n = number of payment months = 3

Substituting all the figures into equation (1), we have:

P = ($1,000 * (0.0075 * (1 + 0.0075)^3)) / (((1 + 0.0075)^3) - 1)

P = $338.35

Therefore, we have:

Total repayment = P * 3 months = $338.35 * 3 = $1,015.05

Interest amount = Total repayment - Loan principal = $1,015.05 - $1,000 = $15.05.

Therefore, the amount that Barry would pay in interest for his loan is $15.05.