Question

Ray Flagg took out a​ 60-month fixed installment loan of​ $12,000 to open a new pet store. He paid no money down and began making monthly payments of
​$221.

​Ray's business does better than expected and instead of making his

30th

​payment, Ray wishes to repay his loan in full. Complete parts ​a) through

​c).

Answer 1

Answer:

Since the question is incomplete, I looked for similar questions:

a) determine apr of installment loan  

b) how much interest will Ray save by paying off the loan early

c) what is the total amt due to pay off the loan?

a) first we will determine the effective rate:

PV annuity factor = loan / monthly payment

PV annuity factor = $12,000 / $221 = 54.2986

Using an annuity table, knowing that the number of periods is 60, we can see that the interest rate is 0.333%.

APR = 0.333% x 12 = 4%

b) I prepared an amortization schedule to determine Ray's balance after the 29th payment.

After the 29th payment, Ray's balance will be $6,498.54

in order to pay off the debt completely, he needs to pay $6,498.54 + $22.32 in interests = $6,520.86.

He will be able to save $331 in interests

c) $6,520.86

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