Question

Jesse is thinking about buying an entertainment system that will cost $1,800. The store will finance the purchase for 12 months at 20 percent interest. His payments will be $166.74. How much will he pay in interest over the life of the loan?

Answer 1

Step-by-step explanation:

First, find the future value of the annuity payments. You can solve this using a Financial calculator. I'm using TI BA II Plus calc.

N= 12

I/Y = 20% /12 = 1.667% ,monthly rate in this case

PMT=166.74

PV =0

then CPT FV = 2,194.876

To calculate the interest paid over the life of the loan, subtract the amount borrowed from this FV amount;

=2,194.876 - 1,800

Interest = $394.876