You borrow $6,000 at a 10 percent annual rate to be repaid in 3 equal payments at the end of each of the next 3 years. How large is the total interest payment over the three years? PV Rate N Total interest paid? CUMIPMT per year years =CUMIPMT(rate, nper, pv, start_period the first period in the calculation, end_period the last period in the calculation, type = 0 payments at the end of the period
You borrow $6,000 at a 10 percent annual rate to be repaid in 3 equal payments at the end of each of the next 3 years. How large is the total interest payment over the three years? PV Rate N Total interest paid? CUMIPMT per year years =CUMIPMT(rate, nper, pv, start_period the first period in the calculation, end_period the last period in the calculation, type = 0 payments at the end of the period
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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![## Loan Interest Calculation Example
**Problem Statement:**
You borrow $6,000 at a 10 percent annual rate to be repaid in 3 equal payments at the end of each of the next 3 years. How large is the total interest payment over the three years?
### Variables:
- **PV (Present Value):** The initial amount borrowed, $6,000.
- **Rate:** The annual interest rate, 10% per year.
- **N (Number of Periods):** The loan term, 3 years.
### Calculation:
To find the total interest paid, we use the CUMIPMT function in a spreadsheet software.
- **CUMIPMT Formula:**
\[
\text{CUMIPMT(rate, nper, pv, start\_period, end\_period, type)}
\]
- **rate:** Interest rate per period.
- **nper:** Total number of payment periods.
- **pv:** Present value (amount of loan).
- **start_period:** The period to start the calculation.
- **end_period:** The period to end the calculation.
- **type:** When payments are due. (0 = end of period)
In this example, we want to calculate the total interest over the 3-year term. Therefore, you will set:
- **start_period** = 1
- **end_period** = 3
- **type** = 0 (since payments are made at the end of the period)
Ensure that the annual rate and number of periods match (e.g., if using monthly periods, adjust the rate accordingly).
No graphs or diagrams included.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F69566391-329e-4866-89eb-afe8b6c4c18f%2Ff3829111-def1-46c6-b014-a52a4810aac1%2Fub595t_processed.png&w=3840&q=75)
Transcribed Image Text:## Loan Interest Calculation Example
**Problem Statement:**
You borrow $6,000 at a 10 percent annual rate to be repaid in 3 equal payments at the end of each of the next 3 years. How large is the total interest payment over the three years?
### Variables:
- **PV (Present Value):** The initial amount borrowed, $6,000.
- **Rate:** The annual interest rate, 10% per year.
- **N (Number of Periods):** The loan term, 3 years.
### Calculation:
To find the total interest paid, we use the CUMIPMT function in a spreadsheet software.
- **CUMIPMT Formula:**
\[
\text{CUMIPMT(rate, nper, pv, start\_period, end\_period, type)}
\]
- **rate:** Interest rate per period.
- **nper:** Total number of payment periods.
- **pv:** Present value (amount of loan).
- **start_period:** The period to start the calculation.
- **end_period:** The period to end the calculation.
- **type:** When payments are due. (0 = end of period)
In this example, we want to calculate the total interest over the 3-year term. Therefore, you will set:
- **start_period** = 1
- **end_period** = 3
- **type** = 0 (since payments are made at the end of the period)
Ensure that the annual rate and number of periods match (e.g., if using monthly periods, adjust the rate accordingly).
No graphs or diagrams included.
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