Question

Assume that interest is the only finance charge. Use financial calculator to answer the questions. How much interest would be paid on a $5,000 installment loan to be repaid in 60 monthly installments of $111.22? Round the answer to 4 decimal places. What is the APR on this loan? Round the answer to 2 decimal places.

Answer 1

Amount borrowed = $5,000
Monthly payment = $111.22
Number of payments = 60

Calculation of total interest paid:

Total amount repaid = Monthly payment * Number of payments
Total amount repaid = $111.22 * 60
Total amount repaid = $6,673.20

Total Interest paid = Total amount repaid - Amount borrowed
Total Interest paid = $6,673.20 - $5,000
Total Interest paid = $1,673.20

Calculation of APR:

Let monthly interest rate be i%

$5,000 = $111.22 * PVIFA(i%, 60)

Using financial calculator:
N = 60
PV = -5000
PMT = 111.22
FV = 0

I = 1.0%

Monthly interest rate = 1.00%
Annual interest rate = 12 * 1.00%
Annual interest rate = 12.00%