What is the minimum annual payment required

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Suppose that you have a $15,000 balance on a car loan. The balance accrues interest annually at a rate of 7% of the total unpaid balance at the end of the year. So the balance in one year depends on the current balance, the interest rate, and the payment: New balance = (Previous balance − payment) · (1 + i) For example, if you make a $2,500 payment in the first year, then your balance next year will be ($15,000 − $2,500) · 1.07 = $13,375. Note that if you make the same payment each year, then after T years, the balance will be:1 Year T balance = (Initial balance) · (1 + i) T − payment · (1 + i) T +1 − (1 + i) Answer the following: (a) iii. What is the cumulative dollar value of the interest that you will end up paying to your lender? (B) Suppose that you wish to pay off your loan in 5 years. i. What is the minimum annual payment required? ii. What is the cumulative dollar value of the interest that you will end up paying to your lender?

Reference no: EM13978662

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