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?

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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