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9 August, 17:52

Sammy borrowed $10,000 to purchase a new car at an annual interest rate of 11%. She is to pay it back in equal monthly payments over a 5-year period. How much total interest will be paid over the period of the loan? Round to the nearest dollar.

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  1. 9 August, 18:13
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    First we need to find the monthly payments in order to find the interest

    Use the formula of the present value of an annuity ordinary which is

    Pv=pmt [ (1 - (1+r/k) ^ (-kn)) : (r/k) ]

    Pv present value 10000

    PMT monthly payment?

    R interest rate 0.11

    K compounded monthly 12 because the payments to repay the loan are monthly

    N time 5years

    Solve the formula for PMT

    PMT=pv:[ (1 - (1+r/k) ^ (-kn)) : (r/k) ]

    PMT=10,000: ((1 - (1+0.11:12) ^ (

    -12*5)) : (0.11:12))

    =217.42 per month

    After that find total paid amount

    5years=60 months

    Total paid=217.42*60=13,045.2

    Total interest

    13,045.2-10,000=3,045.2. Answer
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