Question

You can use the formula P=A(i/1-(1+i)-n) monthly payment on a loan of A dollars that is paid back in equal monthly payments over n months. The variable i represents (annual interest rate 12). Seki has a $4,000 student loan with an 8% annual interest rate which he is scheduled to pay off in 10 years. Use the formula and a calculator to find Seki’s monthly payment.

Answer 1

$48.54

Explanation:

We must express the interest rate on a monthly basis.

i = 8 %/yr = 0.6667 %/mo = 0.006 667

A = $4000

n = 120 mo

`P = A((i)/(1-(1+i)^(-n)))`

`P = 4000((0.006667 )/(1-(1+0.006667)^(-120)))`

`P = (26.67)/(1-0.006667^(-120))`

`P = (26.67)/(1-0.4505)`

`P = (26.67)/(0.5495)`

P = 48.531

The banks round up the numbers, so Seki’s monthly payment is $48.54.