Question

You need some money today and the only friend you have that has any is a miser. He agrees to loan you the money you need, if you make payments of $30 a month for the next six months. In keeping with his reputation, he requires that the first payment be paid today. He also charges you 2 percent interest per month. How much total interest is he charging?

Answer 1

Answer:

$8.6

Explanation:

Calculation for How much total interest is he charging

First step is to calculate the present value (PV) using financial calculator by using this formula

PV=PV(Rate,Nper,PMT,FV,Type)

Rate represent Interest Rate

Nper represent Period

PMT represent Payment

FV represent Future Value

Type = 1 which represent the annuity due reason been that the 1st payment is to be made today

Let plug in the formula

Rate = 2%

Nper = 6

PMT = $30

FV = 0

Type = 1

Hence,

PV = PV(2%,6,30,0,1)

PV= $171.40

Since we have known the PV the last step is to calculate the total interest

Using this formula

Total interest =( PMT*Nper)-PV

Let plug in the formula

Total interest = ($30*6) - $171.40

Total interest = $180 - $171.40

Total interest = $8.6

Therefore the amount of the total interest he will be charging is $8.6

Answer 2

Answer:

$8.6

Explanation:

I/Y = Rate = 2.0

PMT =  -$30

N =  6

Future Value =  $0.00

First we need to set the calculator to annuity due and calculate the CPT PV. We get the Value of loan, $171.40

Interest payment = PMT x 6 - Present value of loan

Interest payment = $30*6 - $171.40

Interest payment = $180 - $171.40

Interest payment = $8.6

Thus, the total interest he is charging is $8.6