Immediately after graduating you bought a car with a bank loan of $20,000. The term of the loan is 5 years with monthly payments at an interest rate of 12% compounded monthly. a) What is the amount of the twelfth payment goes to pay interest?

Principal borrowed = $20,000

Loan year=5years

Monthly interest = 12%

We need to find the amount after 12years

Compound interest is give as

Using compound interest formula

A=P (1+r/n) ^nt

Where,

P = principal amount = $20,000

r = annual rate of interest = 12%=0.12

t = number of years the amount invested = 5years

A = amount of money accumulated after n years, including interest.

n = number of times the interest is compounded per year=12months

Therefore,

A=P (1+r/n) ^nt

A=20,000 (1+0.12/12) ^5*12

A=20,000 (1+0.01) ^60

A=20,000 (1.01) ^60

A=20,000*1.817

A=$36,333.9

So he is meant to pay $36,333.9 for 5years (60months)

Then he will pay

$36,333.9/60

He will pay $605.57 per month

So his twelfth payment is 605.47*12=$7266.78

Using is normal payment

He is suppose to pay $20,000 at a rate of $20,000/60=333.33

Then after the twelve payment, then he his supposed to pay $333.33*12=$4000

So the interest between on the twelfth payment is 7266.78-4000 = $3266.9