Question

An individual borrowed $81,000 at an APR of 3%, which will be paid off with monthly payments of $434 for 21 years.

a. Identify the amount borrowed, the annual interest rate, the number of payments per year, the loan term, and the payment amount.
The amount borrowed is? the annual interest rate is what %? the number of payments per year is? the loan term is how many years? and the payment amount is $?

Answer 1

Compound Interest

The situation described in the problem allows identifying the variables involved in the loan.

* The amount borrowed is P = $81,000. This is also called the present value PV

* The annual interest rate is 3%. Sometimes it corresponds to the nominal interest rate also called APR or to the effective interest rate.

* The number of payments per year is 12. Payments are done on a monthly base and there are 12 months in a year.

* The loan term is the period of time the loan lasts or the total time you have to repay the loan and the interest. It can be identified as 21 years or 252 months

* The payment amount is the monthly payment done by the entire loan term. In this case, the payment amount is $434.