Question

Use the appropriate amortization formula to find (a) the monthly (n=12) payment on a loan with the given conditions and (b) the total interest that will be paid during the term of the loan

$14,500 is amortized over 4 years at an interest rate of 9.6%

Answer 1

a) The monthly payment on the loan of $14,500 amortized over 4 years at a 9.6% interest rate is $364.98.

b) The total interest that will be paid during the term of the loan is $3,018.96.

The monthly payment can be computed using the amortized payment formula below:

`A=P \frac {i(1+i)^n}{(1+i)^n-1}`

Where:

A = periodic payment amount

P = amount of principal, net of initial payments

i = periodic interest rate

n = total number of payments

Using an online finance calculator, both the monthly payment and the total interest are computed as follows:

N (# of periods) = 48 months

I/Y (Interest per year) = 9.6%

PV (Present Value) = $14,500

FV (Future Value) = $0

Results:

PMT = $364.98

The sum of all periodic payments = $17,518.96

Total Interest = $3,018.96