Reflections on Kimmie's Loan Agreement
a. How much was the original loan?
What was the process used to calculate the original loan amount?
b. How much interest did she pay in total?
How was the total interest paid calculated in Kimmie's loan agreement?
a. Original Loan Amount Calculation
The original loan amount was approximately $10,000.02. The formula used to calculate this is PV = PMT * (1 - (1 + r)^(-n)) / r, where PV is the present value (original loan amount), PMT is the monthly payment, r is the interest rate per period (6.6% compounded monthly = 0.066/12), and n is the number of periods (3 years = 3 * 12 = 36 months).
b. Total Interest Paid Calculation
To calculate the total interest paid, the total payments made over the 3-year period were subtracted from the original loan amount. Kimmie paid approximately $596.98 in total interest over the course of the loan.
Reflecting on Kimmie's loan agreement, we learn about the importance of understanding the terms and conditions before signing any financial contract. In this case, Kimmie signed a loan agreement that required monthly payments of $294.25 at the end of each month for 3 years at 6.6% compounded monthly.
By using the formula for the present value of an annuity, we were able to calculate the original loan amount to be approximately $10,000.02. This calculation involved considering the monthly payment, interest rate per period, and number of periods.
Furthermore, by subtracting the original loan amount from the total payments made over the 3-year period, we determined that Kimmie paid approximately $596.98 in total interest. This highlights the significance of understanding the total cost of borrowing and the impact of interest payments on the overall amount repaid.
Overall, Kimmie's experience serves as a reminder to carefully review and comprehend the terms of any financial agreement to make informed decisions and avoid unexpected costs in the future.