Question

Jack took out a 6-year loan for $25,000 to purchase a boat at a 4.5% interest rate. If the interest is compounded monthly, what will he have paid total over the course of the loan?

Answer 1

Answer: $32,732.58

Step-by-step explanation:

To calculate the total loan payment over the course of the loan period, use the future value formula:

= Loan amount * (1 + rate) ^ number of years

As this loan is compounded monthly, you need to convert certain terms to monthly figures:

Number of periods = 6 * 12 months = 72 months

Interest = 4.5 / 12 = 0.375%

Total payment:

= 25,000 * ( 1 + 0.375%)⁷²

= $32,732.58