Question

A person borrows $2000 and will pay off the loan by equal payments at the end of each month for five years. If interest is at the rate of 16.8% compounded monthly, how much is each payment?

Answer 1

To calculate the equal monthly payments for a loan, we can use the formula for the present value of an annuity.

Step-by-step explanation:

To calculate the equal monthly payments for a loan, we can use the formula for the present value of an annuity:

PMT = PV / ((1 - (1 + r)^(-n)) / r)

Where:

• PMT = monthly payment
• PV = present value of the loan ($2,000)
• r = monthly interest rate (16.8% / 12)
• n = number of payments (5 years * 12 months/year)

Substituting the values into the formula, we get:

PMT = 2000 / ((1 - (1 + (0.168 / 12))^(-5 * 12)) / (0.168 / 12))

Calculating this expression will give us the monthly payment amount.