Investigate the effect of the term on simple interest amortized auto loans by finding the monthly payment and the total interest for a loan of $13,000 at 7 and 7/8% interest if the term is the following. (Round all answers to the nearest cent.)

solution

Where:  

P is the principal amount, $13000.00.

r is the interest rate, 7% per year, or in decimal form, 7/100=0.07.

Assume t is 1....year time periods.

To find the simple interest, we multiply 13000 × 0.07 × 1 to get that:

= 13,000×7÷100 = 910  

The interest is: $910.00  for 7% interest rate

Usually now, the interest is added onto the principal to figure some new amount after 1 year(s),

or 13,000.00 + 910.00 = 13910.00.

Where Interest rate is 7/8%

= (13000×7/8 ÷100 =  1024)  

= 13,000 + 1024 = 14,024

Hence the interest rate is 7% and 7/8%

The interest will be $910 and $1024 respectively

monthly payment is vary depending upon the interest rate

Interest rate is low means the monthly payment and repayment period is less

Interest rate is high means the monthly payment and repayment period is more