Question

Consider the following loan. Complete parts​ (a)-(c) below.

An individual borrowed ​$66,000 at an APR of 5​%, which will be paid off with monthly payments of ​$394 for 24 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 ___% The Number of payments per year is ___. The loan term is ___ years

The payment amount is $______

b. How many total payments does the loan require? What is the total amount paid over the full term of the loan?

(To calculate the total number of​ payments, multiply the number of payments per​ year, n, by the loan​ term, Y. Calculate the total number of payments.)

(To calculate the total amount​ paid, multiply the total number of payments by the payment​ amount, PMT. Calculate the total amount paid.)

c. Of the total amount​ paid, what percentage is paid toward the principal and what percentage is paid for​ interest?

(To calculate the percentage paid toward the​ principal, divide the principal amount by the total amount paid. To convert the answer to a​ percent, multiply by 100 and include the​ % sign)

​

Answer 1

a.

The amount borrowed is $ 66,000

The annual interest rate is 5 %

The number of payments in a year is 12

The loan term is 24 years

The payment amount is $ 394.

b.

Total number of payments required = Loan term x Number of payments in a year

                                                        = 12 x 24 = 288

Total amount paid = Total number of payments x payments amount

                             = 288 x $ 394 = $ 113,472

c.

Percentage of total amount towards principal payment = Principal of loan/Total amount paid

= $ 66,000/$ 113,472

= 0.581641286 or 58.16 %

Percentage of total amount towards interest payment

= 100 % - Percentage of total amount towards principal payment

= 100 % - 58.16 % = 41.84 %