Question

Eric must pay off a loan of $3,500 in 5 years. Use the appropriate formula to find the amortization payment he would need to make each six months, at 12% interest compounded semiannually

Answer 1

Given:
Principal = 3,500
term = 5 years
interest rate = 12%
compounded semi-annually

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

A = 3,500 (1 + 12%/2)²ˣ⁵
A = 3,500 (1 + 0.06)¹⁰
A = 3,500 (1.06)¹⁰
A = 3,500 (1.79)
A = 6,265

5 years * 2 = 10 semi-annual payments

6,265 / 10 = 626.50 amortization payment.