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    The Total Interest on a Five Year Loan Compounded Annually

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    To purchase a product, the total price comes to $11,425. I will borrow the money for five years at 8.2% interest compounded annually. That will result in monthly payments of $282.38 each. How much interest will I pay over the life of the loan?

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    Solution Preview

    Please refer to the attached Word document!

    There are two ways to solve the problem, assuming that the interest is 8.2% compounded annually.

    1. Determine the total amount to be repaid including interest

    The total amount to be repaid over the 5 years is calculated as follows:

    = total amount to be repaid
    = original loan amount = $11,425
    = annual interest rate = 8.2% = = 0.082

    Solution Summary

    The solution carefully explains the calculations using two methods to produce an answer.