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

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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:

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

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