Problema Solution
Some friends tell you that they paid $34,304 down on a new house and are to pay $795 per month for 30 years. If interest is 5.1% compounded monthly, how much interest will they pay in 30 years?
Answer provided by our tutors
R = $795 is the periodic payment
t = 30 years
n = 12*30 = 360 periods
i = 0.051/12 the interest rate per period
S = the future value of an ordinary annuity
I = the interest
S = R[((1 + i)^n - 1)/i]
S = 795[((1 + 0.051/12)^360 - 1)/(0.051/12)]
S = $674,015.708
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I = S - 795*360 = 674,015.708 - 286,200 = $387,815.708 is the interest.