Question

To purchase a new truck, you borrow $30,000. The bank offers a 6-year loan at an interest rate of 3.25% compounded annually. If you make only one payment at the end of the loan period, repaying the principal and interest: a. What is the number of time periods (n) you should use in solving this problem? b. What rate of interest (i), per period of time, should be used in solving this problem? c. Is the present single amount of money (P) known? (Yes or No) d. Which time value factor should be used to solve this problem? e. What is the total amount that must be paid back? f. How much of the total amount repaid represents interest?

Answer 1

Answer:

Instructions are listed below

Explanation:

Giving the following information:

To purchase a new truck, you borrow $30,000.

The bank offers a 6-year loan at an interest rate of 3.25% compounded annually.

You make only one payment at the end of the loan period, repaying the principal and interest.

A) Numbers of years= 6

B) Interest rate= 3.25% annual

C) We know the present value= $30,000

D) We know that the passing of time generates interest. Because we will pay in the end, the interest is compounded annually.

E) To calculate the total debt, we need to use the following formula:

FV= PV*(1+i)^n

FV= final value

PV= present value

i= interest rate

n= number of years

FV= 30000*(1.0325)^6= $38346.42

F) Interest= final value  - principal

Interest= 38346.42 - 30000= 8346.42