what monthly payments are necessary to pay off a loan of $8000 at 10 percent per

Question

what monthly payments are necessary to pay off a loan of $8000 at 10 percent per year in 2 yrs? 3 yrs? what total amount is paid out for each loan?

i am confused about the yrly percent... my numbers keep coming back wrong...

Explanation / Answer

We will use pv eqn. : PV = a*r(1-r^n)/(1-r) where, a = monthly payment (a1 for 2 years, and a2 for 3 years) r = discount factor = 1/(1+k) = 1/1.0083 (k = monthly interest rate = 10/12% = 0.83% = 0.0083) n period in months,n1 = 2*12 = 24 and n2 =3*12 = 36 So, 8000 = a1*(1/1.0083)(1-(1/1.0083)^24)/(1-1/1.0083) => a1 = 369.01 = 369 approx. ($) per month for 2 years (ANSWER) Total amount paid = FV of 8000 at the end of 2 years = 8000*(1+0.0083)^24 => = 9755.38 ($) (ANSWER) also, 8000 = a2*(1/1.0083)(1-(1/1.0083)^36)/(1-1/1.0083) => a2 = 257.99 i.e. 258 approx. ($) per month for 3 years (ANSWER) Total amount paid = FV of 8000 at the end of 3 years = 8000*(1+0.0083)^36 => = 10272.63 ($) (ANSWER)

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