Figure 5.5.1: Calculation of for Example 5.5.1 P The Ed paid for the iPad was $1,087.83. That’s a lot more that $500! Also, the total amount he paid over the course of the loan was . Therefore, the total amount of interest he paid over the course of the loan was $1440 - $1087.83 = $352.17. For some problems, you will have to find the payment instead of the present value. In that case, it is helpful to just solve the loan payment formula for Since is PMT. PMT multiplied by a fraction, to solve for you can just multiply both sides of the formula PMT, by that fraction. You should just think of the loan payment formula in two different forms, one solving for present value, and one solving for payment, P, PMT. Example 5.5.2: Loan Formula—Finding Payment Jack goes to a car dealer to buy a new car for $18,000 at 2% APR with a five-year loan. The dealer quotes him a monthly payment of $425. What should the monthly payment on this loan be? = $18,000, = 0.02, = 12, = 5 P r n t Figure 5.5.2: Calculation for PMT for Example 5.5.2
Figure 5.5.1: Calculation of P for Example 5.5.1 The Ed paid for the iPad was $1,087.83. That’s a lot more that $500! Also, the total amount he paid over the course of the loan was . Therefore, the total amount of interest he paid over the course of the loan was $1440 - $1087.83 = $352.17. For some problems, you will have to find the payment instead of the present value. In that case, it is helpful to just solve the loan payment formula for PMT. Since PMT is multiplied by a fraction, to solve for PMT, you can just multiply both sides of the formula by that fraction. You should just think of the loan payment formula in two different forms, one solving for present value, P, and one solving for payment, PMT. Example 5.5.2: Loan Formula—Finding Payment Jack goes to a car dealer to buy a new car for $18,000 at 2% APR with a five-year loan. The dealer quotes him a monthly payment of $425. What should the monthly payment on this loan be? P = $18,000, r = 0.02, n = 12, t = 5 Figure 5.5.2: Calculation for PMT for Example 5.5.2
Chapter_5_Finance.docx