Question

Estimate how much her monthly payments would be if she is charged an interest rate of 5.05% and she takes the full 10 years to repay the loan. (Note: It is assumed that you will use the "average balance method" which was discussed during the collaboration, and then round your answer to the nearest dollar.)

A. $257
B. $304
C. $352
D. $401

Answer 1

Option B). To estimate the monthly payments, use the formula for calculating the monthly payment for an installment loan. Plug in the loan amount, interest rate, and number of months to get the estimated monthly payment. In this case, the estimated monthly payment is approximately $304.

Step-by-step explanation:

To estimate the monthly payments for a loan, we can use the formula for calculating the monthly payment for an installment loan. The formula is:

Monthly payment = PV * r * (1 + r)^n / ((1 + r)^n - 1)

Where PV is the principal loan amount, r is the monthly interest rate, and n is the number of months.

In this case, the PV is the loan amount, the interest rate is 5.05% divided by 12 to get the monthly rate, and the number of months is 10 years multiplied by 12 months.

Plugging in the values into the formula, we get:

Monthly payment = 10000 * (0.0505/12) * (1 + 0.0505/12)^(10*12) / ((1 + 0.0505/12)^(10*12) - 1)

By evaluating this expression, the estimated monthly payment is approximately $304. Therefore, the correct answer is $304.