SOLUTION: The monthly payment on a 2-year loan is $500. The interest rate is 6.65% compunded monthly. What is the amount of the loan?

Question 220275: The monthly payment on a 2-year loan is $500. The interest rate is 6.65% compunded monthly. What is the amount of the loan?
Answer by Theo(13342) (Show Source): You can put this solution on YOUR website!
Formula for present value of a series of payments is:
PRESENT VALUE OF A PAYMENT

PV = present value
PMT = payment per time period
i = interest rate per time period
n = number of time periods
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6.55% per year compounded monthly is:
6.55/12 = .554166667% per month which equals a rate of:
.00554166667 per month.
Number of month is 2 years * 12 months = 24 months
payment is $500 per month.
-----
PV = what we want to find.
PMT = $500 per month
i = .00554166667 per month
n = 24 months
Formula becomes:

which equals: $11,224.28901
-----
The loan was $11,224.28901
The lender received $12,778.06 by the end of the loan (Future Value of a Series of Payments).
Principal was $11,224.29
Interest was $1,553.77
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