Question 1118845: In one instance, a financial institution loaned you $70,000 for two years at an APR of 6.75% for which you must make monthly payments. In a second instance, you loaned a financial institution $70,000 for two years at an APR of 6.75% compounded monthly. What is the difference in the amount of interest paid? (Round your answer to the nearest cent.)
Answer by Theo(13342)   (Show Source):
You can put this solution on YOUR website! the monthly payments on the loan to you from the bank are equal to $3,126.153065.
the total payments you made are equal to 24 times that = $75,027.67355.
the total interest you paid is equal to that minus the original loan amount of $70,000 = $5,027.67355.
when you deposit $70,000 in the bank for 2 years at 6.75% per year compounded monthly, the future value of that amount will be $80,087.27459.
the interest earned is that minus the original amount you invested of $70,000 = $10,087.27459.
i used the TI-BA-II financial calculator to get these results.
to calculate what the monthly payment would be, the inputs were:
present value = 70,000.
future value = 0.
interest rate per month = 6.75/12.
number of months = 2 * 12.
payments are made at the end of each month.
i then had the calculator give me the monthly payment.
to calculate what the future value of the 70,000 deposit into the bank would be, the inputs were:
present value = 70,000.
payment per month = 0.
interest rate per time period = 6.75/12.
number of time periods = 2 * 12.
i then had the calculator give me the future value.
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