Question

Alyssa just graduated from college and owes $20,200 on her student loans. The bank charges an annual interest rate of 2.1%, compounded monthly. If Alyssa wants to pay off her student loans using equal monthly payments over the next 14 years, what would the monthly payment be, to the nearest dollar?

Answer 1

Answer: $139

Work Shown:

P = (L*i)/( 1-(1+i)^(-n) )

P = (20200*0.00175)/( 1-(1+0.00175)^(-168) )

P = 138.88234913163

P = 138.88

When rounding to the nearest cent, the monthly payment would be $138.88

When rounding to the nearest dollar, the monthly payment would be $139

Step-by-step explanation:

The monthly payment formula above has three input variables.

• L = loan amount
• i = monthly interest rate in decimal form
• n = number of months

In this case,

• L = 20200
• i = 0.021/12 = 0.00175 exactly
• n = 14*12 = 168 months (equivalent to 14 years)

Those values are then plugged into the formula as shown above.

Many financial calculators can be used to verify the answer is correct.