Question

Compute the monthly payment, total cost of the loan, and amount of interest paid for these car loans. Use the TVM Solver website to answer the following questions. Joanie can get an $11,000 loan for five years at 6% APR. Calculate the monthly payment.

Answer 1

The amount of the loan is $11000 (this is also called the principal)

the loan is for 5 years (so time is 5), and the annual interest reat is 6% (which in math form becomes: 0.06.

So, we use the formula for the Total value of the loan (also known as ACCRUED value), which is the following exponential function:

`A=P(1+r)^t`

Here we replace: P (principal) with 11000

r with 0.06 (annual interest rate)

and t with 5 (number of years), and we get:

`A=11000(1.06)^5\text{ =}14720.48`

Therefore the total to be paid for the loan is $14720.48. Now, in order to find the amount to be paid per month during the 5 years of the loan, we reacall that there are 12 months in a year, therefore we are going to have 5 * 12 = 60 monthly loan payments to complete the total loan amount. Then each loan payment per month will be:

$14720.48 / 60 = $245.34