Question

What would the monthly payment be for a $5,000 loan with a 6.25% interest rate compounded monthly spread over 60 months? a. $25.31 b. $97.25 c. $217.00 d. $320.95

Answer 1

B. $97.25

Explanation:

Answer 2

Option b - $97.25

Explanation:

Given : A $5,000 loan with a 6.25% interest rate compounded monthly spread over 60 months

To find : What would the monthly payment ?

Solution :

Formula of monthly payment

`M=\frac{\text{Amount}}{\text{Discount factor}}`

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

Where, Amount = $5000

Rate r= 6.25%=0.0625

`i=(0.0625)/(12)=0.005208`

Time = n=60 months

Now, put all the values we get,

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

`D=(1-(1+0.005208)^(-60))/(0.005208)`

`D=(1-(1.005208)^(-60))/(0.005208)`

`D=(1-0.7322)/(0.005208)`

`D=(0.2677)/(0.005208)`

`D=51.415`

Monthly payment,
`M=(A)/(D)`

`M=(5000)/(51.415)`

`M=97.247`

Approximately The monthly payment is $97.25.

Therefore, Option b is correct.