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26 February, 13:14

Jesse is thinking about buying an entertainment system that will cost $1,800. The store will finance the purchase for 12 months at 20 percent interest. His payments will be $166.74. How much will he pay in interest over the life of the loan?

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  1. 26 February, 13:43
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    First, find the future value of the annuity payments. You can solve this using a Financial calculator. I'm using TI BA II Plus calc.

    N = 12

    I/Y = 20% / 12 = 1.667%, monthly rate in this case

    PMT=166.74

    PV = 0

    then CPT FV = 2,194.876

    To calculate the interest paid over the life of the loan, subtract the amount borrowed from this FV amount;

    =2,194.876 - 1,800

    Interest = $394.876
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