Question

Suppose that you borrow $10,000 for four years at 8% toward the purchase of a car. Use PMT=

find the monthly payments and the total interest for the loan.
The monthly payment is
(Do not round until the final answer. Then round to the nearest cent as needed.)
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Answer 1

To find the monthly payments, we can use the PMT function in Excel or a financial calculator. The formula is:

PMT(rate, nper, pv)

where rate is the interest rate per period, nper is the total number of periods, and pv is the present value (i.e. loan amount).

For this problem, the interest rate is 8%/12 = 0.0066667 per month, the number of periods is 4 years * 12 months/year = 48 months, and the present value is $10,000. Therefore, the formula becomes:

PMT(0.0066667, 48, 10000)

Evaluating this formula gives a monthly payment of $242.42.

To find the total interest for the loan, we can multiply the monthly payment by the number of periods (i.e. 48) and subtract the loan amount. This gives:

total interest = monthly payment * number of periods - loan amount

total interest = $242.42 * 48 - $10,000

total interest = $2,678.16

Therefore, the monthly payments are $242.42 and the total interest for the loan is $2,678.16.

Explanation: