Suppose that you decide to borrow 13000 for a new car. You can select one of the following loans each requiring regular monthly payments. Installment  loan A three-year loan at 5.9%Installment  loan B  five -year loan at 5.8%What would be the monthly payments for each loan and total interest for them also?

Question
Asked Nov 19, 2019
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Suppose that you decide to borrow 13000 for a new car. You can select one of the following loans each requiring regular monthly payments. 

Installment  loan A three-year loan at 5.9%

Installment  loan B  five -year loan at 5.8%

What would be the monthly payments for each loan and total interest for them also?

 

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Expert Answer

Step 1

With the given information, we need to find the monthly payments and total interest for each of the loans. We can solve the problem using the following steps:

Step 2

Part 1: Installment loan A
Present value of the loan (Principal amount) is $13000
Interest rate is 5.9%
Monthly interest rate is 5.9% divided by 12 which is equal to 0.004916667
Time period is 3 years
Number of periods for monthly payments is 3 multiplied by 12 which is equal to 36
Future value of the loan will be zero as it will be repaid completely.
We can determine the monthly payments using excel.

Step 3
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