Question

Calculate the monthly payment for a loan of $7,500 with an 11% interest rate compounded monthly over a period of 5 years.

a. $128.46
b. $163.07
c. $858.18
d. $1541.50

Answer 1

b is the correct answer to the problem.

Answer 2

Option b - $163.07

Explanation:

Given : A loan of $7,500 with an 11% interest rate compounded monthly over a period of 5 years.

To find : Monthly payment

Solution : Formula to find monthly payment

Monthly Payment = Amount / Discount factor

Discount factor
`D=(1-(1+i)^(-n))/(i)`

where ,

Amount = $7500

Rate= 11%=0.11

`i = (0.11)/(12)=0.0091`

Time = 5 years

`n=5*12= 60`

Now, put i and n in Discount factor ,

`D=(1-(1+i)^(-n))/(i)`

`D=(1-(1+0.009)^(-60))/(0.009)`

`D=(1-(1.009)^(-60))/(0.009)`

`D=(0.421)/(0.009)`

`D=46.77`

Monthly payment,

`M=(A)/(D)`

`M=(7500)/(46.77)`

`M=163.07`

Therefore, Option b is correct monthly payment = $163.07