Question 220275
Formula for present value of a series of payments is:
PRESENT VALUE OF A PAYMENT
{{{ PV(PMT) = (PMT * (1 - (1 / (1+i)^n))/i) }}}
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.
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PV = what we want to find.
PMT = $500 per month
i = .00554166667 per month
n = 24 months
Formula becomes:
{{{ PV(PMT) = (500 * (1 - (1 / (1.0054166667)^24))/.0054166667) }}}
which equals: $11,224.28901
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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