Question

You plan on financing a new road bike for $2,500. The bike shop offers a 13.5% APR for a 24 month loan. Use this information, and the table above, to determine the monthly payments. Round your answer to the nearest cent.

a.
$104.17
c.
$210.10
b.
$119.44
d.
$366.50

Answer 1

The monthly payment for a $2,500 road bike financed at a 13.5% APR for 24 months is approximately $119.44.

Step-by-step explanation:

To determine the monthly payments for a $2,500 road bike financed at a 13.5% APR for 24 months, we use the formula for monthly payments on an amortized loan which is PMT = P * (r(1+r)^n) / ((1+r)^n - 1), where PMT is the monthly payment, P is the principal amount ($2,500), r is the monthly interest rate (APR/12), and n is the number of payments (24).

First, calculate the monthly interest rate by dividing the APR by 12 months: r = 13.5% / 12 = 1.125% or 0.01125.

Next, insert the values into the formula:

PMT = $2,500 * (0.01125(1+0.01125)^24) / ((1+0.01125)^24 - 1)

When you do the math, you find that the monthly payment rounds to $119.44.

Thus, the monthly payment for the loan is $119.44.