Franklin's new snowmobile cost $9,500. After his down payment of $1,500, he financed the remainder at 10% for 3 years. Use the table to find the monthly payment for the amortized loan. Find the total interest paid on the loan. E Click the icon to view a table of monthly payments on a $1,000 loan. The monthly payments for this loan are $ (Round to the nearest cent as needed.)
Franklin's new snowmobile cost $9,500. After his down payment of $1,500, he financed the remainder at 10% for 3 years. Use the table to find the monthly payment for the amortized loan. Find the total interest paid on the loan. E Click the icon to view a table of monthly payments on a $1,000 loan. The monthly payments for this loan are $ (Round to the nearest cent as needed.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Transcribed Image Text:**Title: Calculating Monthly Loan Payments**
**Scenario:**
Franklin's new snowmobile costs $9,500. After making a down payment of $1,500, he financed the remaining amount at an interest rate of 10% for a period of 3 years. The goal is to find the monthly payment for the amortized loan and determine the total interest paid.
**Instructions:**
- Click the icon to access a table that lists monthly payments for a $1,000 loan.
**Task:**
Calculate the monthly payments for this loan, rounding your answer to the nearest cent.
**Steps:**
1. Determine the loan amount by subtracting the down payment from the total cost of the snowmobile: $9,500 - $1,500 = $8,000.
2. Use the provided table to find the monthly payment per $1,000 of loan at a 10% interest rate for 3 years.
3. Multiply the value obtained from the table by 8 to calculate the total monthly payment.
4. Enter your answer in the provided text box and click "Check Answer" to verify.
This exercise assists students in understanding the process of calculating monthly payments for an amortized loan, considering interest rates and loan periods.
Transcribed Image Text:### Monthly Payment on a $1,000 Loan
The table below displays the monthly payment amounts for a $1,000 loan based on different annual interest rates and various loan terms. This information can be used to understand how interest rates and loan durations impact monthly payments.
#### Table: Monthly Payment Amounts
| **Annual Interest Rate** | **3 Years** | **4 Years** | **10 Years** | **20 Years** | **30 Years** |
|--------------------------|-------------|-------------|--------------|--------------|--------------|
| 4% | $29.53 | $22.58 | $10.12 | $6.06 | $4.77 |
| 5% | $29.97 | $23.03 | $10.61 | $6.60 | $5.37 |
| 6% | $30.42 | $23.49 | $11.10 | $7.16 | $6.00 |
| 8% | $31.34 | $24.41 | $12.13 | $8.36 | $7.34 |
| 10% | $32.27 | $25.36 | $13.22 | $9.65 | $8.78 |
| 12% | $33.21 | $26.33 | $14.35 | $11.01 | $10.29 |
### Analysis
- **Interest Rate Impact**: As the annual interest rate increases, the monthly payment also increases. This demonstrates the effect of interest on borrowing costs.
- **Loan Duration Impact**: Extending the loan duration reduces monthly payments. However, longer terms may result in higher overall interest paid over the life of the loan.
- **Short vs. Long Term**: Short-term loans have higher monthly payments but typically result in lower total interest paid.
This table serves as a useful reference for evaluating different loan scenarios based on financial needs and capabilities.
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