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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Business

Francesca Anderson

3 August, 02:51

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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Cynthia Alexander · Answer 1

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