In paragraph form, answer the following question. Explain your mathematical processes and reasoning. Act as if you are trying to show your neighbor, college instructor or a potential employer how you got your answer. Use relevant formulas and data to explain your reasoning.
1. Suppose that you are shopping for loan to purchase a house or a car. Assume that the interest on the loan will be compounded monthly.
a) What amount are you willing to pay each month toward the loan? Use this amount as your monthly payment.
b) How long do you expect to pay on the loan? (Home loans typically have 15 year, 20 year, or 30 year terms. Car loans typically have 3 year, 4 year, or 5 year terms.)
c) What is the current interest rate for the term you chose? Check a website for interest rates or contact your local financial institution to find the current rates and assume that you qualify for the advertised interest rate. State where you found your information in your essay.
d) What is the largest loan amount you can borrow based on your answers to parts a, b, and c?
e) If you decide to borrow the maximum loan amount and make each monthly payment on time (without making extra payments toward the principal), what is the total amount you will pay over the life of the loan?
f) What is the total amount of interest that you would pay?