Is My Economics Teacher Wrong?

ok I'm sure we can work this out ..

but what you have asked is a bit ambiguous..


what the banks want back from you each month is some interest (that's just a charge for using their money)...and for you to pay of a small bit of the amount you borrowed...known as the principle.

now really they have other things in there also like insurance and loan fees etc.

the key point here I think is that interest rates are quoted for the year...so say a 12% per anum rate would break down to only 1% per month.

also don't forget that after the first payment of principle you owe the bank slightly less money so the interest will be slightly less...

it's quite involved.

How about a demo..

I need to borrow 100K to start up a bar.
The local crime Boss says OK you can have 100K for 10 years then we want it back.
Or we break your…. everything.
So how much will we need to give the Boss back each month so that after 10 years we are all square.
100K divided by 10 years is 10K per year.
Which breaks down to $833 per month.
But wait they also want interest…
And they want to charge you 12%…now we are going to be paying monthly..
so 12% per Year actually is only 1% per month.
So what is one percent of the amount the Boss gave you?
It's … 1 thousand…one thousand per month ( just for using their money)
So each month big Joey is coming around to your bar to pick up an envelope with 1.83k.
You better sell more drinks than that..
The rest is details.
Remember after the first payment you only owe the Boss 100K minus $833 or $99,167