If you borrow $1000 at an APR of 12% and pay it back in one year making the same payment amount each month, what principal (P) and interest (I) have you paid when the load is paid off?
a. P=$1200, I=$120
b. P=$1000, I=$120
c. P=$1000, I=$66.19
d. P=$1200, I=$65.50
e. P=$1000, I=$60.00
You would make a monthly payment of $88.85, which includes principal + interest:
$88.85 X 12=$1,066.20, which is $1,000 principal + $66.20 interest, or "c"
The formula you would use to calculate this is:
PMT=PV. R.{[1 + R]^N/ [1 + R]^N - 1}=PMT NEEDED TO PAY OFF A LOAN OF $1, Where R=Interest rate per period, N=number of periods, PMT=periodic payment. PV=Present value.
