Question

Of 1

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.
$6,200 is amortized over 8 years at an interest rate of 7.5%.

Answer 1

Explanation:

The monthly payment on a loan and the total interest that will be paid during the term of the loan can be found using an amortization formula.

Here are the steps to find the monthly payment and total interest for the given loan conditions:

Convert the interest rate to a decimal: 7.5% = 0.075

Divide the interest rate by the number of periods (months) per year: 0.075 / 12 = 0.00625

Find the number of payment periods: 8 years * 12 months/year = 96

Calculate the monthly payment using the amortization formula:

Payment = Loan Amount * (Interest Rate / (1 - (1 + Interest Rate)^(-Number of Payments)))

Payment = $6,200 * (0.00625 / (1 - (1 + 0.00625)^(-96)))

Payment = $79.88

So, the monthly payment on the loan is $79.88.

Calculate the total interest paid over the term of the loan:

Total Interest = (Monthly Payment * Number of Payments) - Loan Amount

Total Interest = ($79.88 * 96) - $6,200

Total Interest = $7,538.88

So, the total interest that will be paid during the term of the loan is $7,538.88.