SOLUTION: Rounding in the calculation of monthly interest rates is discouraged. Such rounding can lead to answers different from those presented here. For long-term loans, the differences ma

Question 1042369: Rounding in the calculation of monthly interest rates is discouraged. Such rounding can lead to answers different from those presented here. For long-term loans, the differences may be pronounced.
Assume that you take out a $6000 loan for 37 months at 3.5% APR. How much total interest will you have paid at the end of the 37 months? (Round your answer to the nearest cent.)
$ 1,081

Incorrect: Your answer is incorrect.
Can anyone tell me the correct answer and how to get it. I thought I did it right.
Answer by solver91311(24713) (Show Source): You can put this solution on YOUR website!

This cannot be answered with the information given. What are the payment terms (monthly, quarterly,...?). What is the compounding frequency?

If you meant that it is a $6000 loan at 3.5% that is repaid in 37 equal monthly installments with interest accruing on the unpaid balance each month, then you need to first calculate the amount of each monthly payment:

Where

is the payment amount,

is the monthly interest rate expressed as a decimal fraction,

is the initial loan amount, and

is the number of equal monthly payments to be made. Get out your calculator. Note: To find the monthly interest rate, divide the annual interest rate by 12. Here is where the admonition about rounding comes into play. You need to maintain at least 6 decimal place accuracy on this intermediate calculation in order to have the final answer come out correctly.

Once you know the payment amount, multiply that amount by 37, to get the total amount paid at the end of the loan. Then subtract the initial loan amount from the total amount paid. The difference is the interest paid.

John

My calculator said it, I believe it, that settles it

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