Consider a student loan of $17,500 at a fixed APR of 6% for 3 years.
A. Calculate the monthly payment
B. Determine the total amount paid over the term of the loan
C. Of the total amount paid, what percentage is paid toward the principal and what percentage is paid for interest.
To find the monthly payment use the formula of the present value of an annuity ordinary which is Pv=pmt [(1-(1+r/k)^(-kn))÷(r/k)] Pv student loan 17500 PMT monthly payment? R interest rate 0.06 K compounded monthly 12 because the payments are monthly. N time 3 years Solve the formula for PMT to get PMT=pv÷[(1-(1+r/k)^(-kn))÷(r/k)] PMT=17,500÷((1−(1+0.06÷12)^( −12×3))÷(0.06÷12)) =532.38
The total amount paid 532.38×12months×3 years =19,165.68
The percentage is paid toward the principal is (17,500÷19,165.68)×100 =91.31%
The percentage is paid for interest is ((19,165.68−17,500)÷19,165.68)×100 =8.69%
