Question

In the monthly payment formula P r(1+r)²/(1+r)ⁿ-1, what value do you give r if the interest rate is 8.9%?

a) 0.74
b) 0.74O
c) 0.0074
d) 0.0089

Answer 1

For the monthly payment formula, convert the annual interest rate to the monthly interest rate by dividing by 100 and then by 12. The 8.9% annual interest rate becomes a monthly rate of 0.0074.

Step-by-step explanation:

The monthly payment formula you are referring to is commonly used to calculate loan payments with compound interest. In this formula, the value of r represents the monthly interest rate, which you calculate by dividing the annual interest rate by 12 (the number of months in a year). If the annual interest rate is 8.9%, you would convert this to a decimal by dividing by 100, which gives you 0.089. Then you divide this annual rate by 12 to get the monthly interest rate, which in this case would be 0.0074. Therefore, the correct answer is c) 0.0074.