Question

Suppose that under the Plan of Repayment one should pay off the debt in a number of equal​ end-of-month installments​ (principal and​ interest). This is the customary way to pay off loans on​ automobiles, house​ mortgages, etc.A friend of yours has financed ​$24,000 on the purchase of a new​ automobile,and the annual interest rate is 12% ​(1​%per​ month).

a)Monthly payments over a 60-month loan period will be how​ much?

b) How much interest and principal will be paid within three month of this​ loan?

Answer 1

a)

The monthly payment is calculated as follows

Monthly payment = $ 533.87

Monthly payments over a 60-month loan period will be = $ 533.87 x 60 months

Monthly payments over a 60-month loan period will be = $ 32,032.20

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b) The amortization schedule for 1st three months is shown in the table below

Month	Beginning balance	Monthly payment	Interest	Principal	Ending balance
1	$24,000	$533.87	$240.00	$293.87	$23,706.13
2	$23,706.13	$533.87	$237.06	$296.81	$23,409.32
3	$23,409.32	$533.87	$234.09	$299.78	$23,109.54

Total principal paid in three months = $ 293.87 + $ 296.81 + $ 299.78

Total principal paid in three months = $ 890.46

Total interest paid in three months = $ 240 + $ 237.06 + $ 234.09

Total interest paid in three months = $ 711.15