Question

Suppose that you borrow ​$13,000 for three years at 5​% toward the purchase of a car. Use
`PMT = (P(r)/(n))/(1-(1+(r)/(n))^-)` to find the monthly payments and the total interest for the loan.

Answer 1

PMT is 389.62

Total interest for the loan is $ 1026.32

Explanation:

Given formula of monthly payment,

`PMT=(P((r)/(n)))/(1-(1+(r)/(n))^(-nt))`

Where,

P = Present value of the loan,

r = annual rate of interest,

n = number of months in a year,

t = number of years,

Here, P = $13,000, n = 12 months, r = 5% = 0.05, and t = 3 years,

Hence, the monthly payment,

`PMT=(13000* (0.05)/(12))/(1-(1+(0.05)/(12))^(-36))`

≈ 389.62,

Therefore,

The amount of total interest paid = PMT × nt - P

= 389.62 × 36 - 13000

= 14026.32 - 13000

= $ 1026.32