A car buyer takes out a 25,000 e loan to purchase the car. Suppose that the annual interest rate is 3%. Assume that interest is compounded continuously and that payments are also made continuously. (i) What monthly payment is required to pay off the loan in 10 years? (ii) What is the total interest paid during the term of the mortgage?

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A:

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A: The series of payments discussed above is an annuity wherein an equal payment is made every month.

Cost of Credit

The cost of credit is an extra amount that the borrower has to pay besides the loan amount. These credit charges may vary from loan to loan. The cost of credit includes interest charges, maintenance charges, and arrangement charges. Some of the costs are mandatorily collected by the lender based on the loan amount and tenure of the loan. The cost of credit is also called finance charges of the credit.