jamal has a 60month fix loan with a monthly payment of 33750

jamal has a 60-month fix loan with a monthly payment of $337.50. The amount he borrowed was 13,500. Instead of making his 38th payment, jamal is paying the balance on the loan. how much interest will jamal save?

Multiple choice

A.$933.20 B.$839.88 C. $ 880.93 D. $ 1073.18

Solution

Annual compound interest formula

The formula for annual compound interest is A = P (1 + r/n) ^ nt:

Where:

A = the future value of the investment/loan, including interest
P = the principal investment amount (the initial deposit or loan amount)
r = the annual interest rate (decimal)
n = the number of times that interest is compounded per year
t = the number of years the money is invested or borrowed for

60 months = 5 years

Total amount after 5 years = 60 x 337.5 = 20,250

annual compound interest is A = P (1 + r/n) ^ nt

n = 12 , P = 13,500 , t = 5

20,250 = 13,500 (1 + r/12) ^ 12[5]

1.5 = (1 + r/12) ^ 60

1.00678 = (1 + r/12)

r = 0.0814

For 37 months, [ t = 3.0833 years ]

A = 13,500(1 + 0.0814/12) ^ 12[3.0833]

A = 13,500(1 + 0.00678) ^37

A = 13500(1.284) = 17,334.98