Final answer:
To calculate the monthly payment for an $8,500 loan at 4% interest over 3 years, convert the annual rate to a monthly rate, then use the amortizing loan payment formula. Plug in the values to identify the monthly payment.
Step-by-step explanation:
To calculate the monthly payment for an $8,500 loan that is borrowed for 3 years (or 36 months) at an interest rate of 4%, you can use the formula for an amortizing loan payment. The formula is P = [rPV] / [1 - (1 + r)^-n], where: P = monthly payment, r = monthly interest rate (annual rate divided by 12), PV = present value, or initial amount of the loan, n = total number of payments (months)
To apply this formula: First, convert the annual interest rate to a monthly rate. In this case, 4% annually becomes 0.04/12 per month, which is 0.003333... Next, plug in the values into the formula: P = [0.003333... x 8,500] / [1 - (1 + 0.003333...)^-36]. Performing the calculation will give you the monthly payment amount for the loan.