Question

. Gerald wants to borrow $12,000 in order to buy an engagement ring. He wants to repay the loan by making monthly installments for two years.

If the interest rate on this loan is 9 1 2 % per year, compounded monthly, what is the amount of each payment?

Answer 1

$550.97

Explanation:

The amortization formula will tell you the payment amount.

A = P(r/12)/(1 -(1 +r/12)^(-12t))

where A is the monthly payment, P is the principal amount of the loan, r is the annual interest rate, t is the number of years. Using your values, this is ...

A = $12,000(0.095/12)/(1 -(1 +0.095/12)^(-12·2)) ≈ $550.97

The amount of Gerald's payment is $550.97.