SOLUTION: Please help me with this question: Interest on a twelve-month installment loan is to be calculated using the discount nethod. If the purchase to be financed is $1,000 and the disc

Question 117481: Please help me with this question:
Interest on a twelve-month installment loan is to be calculated using the discount nethod. If the purchase to be financed is $1,000 and the discount rate is 6%, then your monthly payment is what?
Answer by tutor_paul(519) (Show Source): You can put this solution on YOUR website!
First, calculate the total interest you have to pay:

where:
I = total amount of interest paid
A = loan amount
i = interest rate per time period
N = number of time periods covered by the loan
So in your case:

Note that for the "discount method," the amount of money you receive as a borrower already has the interest deducted from it. So you will actually be receiving, called the loan proceeds and represented by 'L' is:

So even though you got only $940 from the bank, the payments are based on 'A' which is the loan amount of $1000. Since you are repaying this on a 12 month installment loan, the monthly loan payments are:

Good Luck,
tutor_paul@yahoo.com

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