Question

I am borrowing $10,000 for 5 years at 9%. payments, which are made on a monthly basis, are determined using the add-on method. 1. how much total interest will i have to pay on the loan if it is held for the full 5 year term. 2. what are my monthly payments. 3. how much higher are the monthly payments under the add-on method under the simple interest method?

Answer 1

1. P = (Po*r*t)/(1-(1+r)^-t)

r = (9%/12)/100% = 0.0075 = Monthly % rate expressed as a decimal.

t = 12mo/yr * 5yrs. = 60 Months.

Plug th above values into the givenEq and get:
P = $12,455.01
I = P-Po

2. Monthly = P/t

3. P = Po + Po*r*t
Po = $10,000
r = 0.0075
t = 60 Months
Plug the above values into the given Eq
and get:
P = $14,500
Monthly = P/t