Question

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Mr. Bean wants to borrow $ 7,900 \) for three years. The interest rate is 5.9 % \) compounded monthly. a. What quarterly payments are required on the loan? (Do not round intermediate calculati

Answer 1

Given:

Loan amount (present value), PV = $7,900

Interest rate per period, r = 5.9% compounded monthly

Number of periods, n = 3 years (since payments are quarterly, we need to convert this to quarters)

First, we need to convert the interest rate to a quarterly rate:

Quarterly interest rate = (1 + monthly interest rate)^(months per quarter) - 1

= (1 + 0.059/12)^(12/3) - 1

= 0.0147 or 1.47%

Now, we can substitute the values into the formula:

P = (0.0147 * 7900) / (1 - (1 + 0.0147)^(-3))

Using a calculator or spreadsheet, we can solve for P to find the quarterly payment required on the loan. The calculated value will be the equal periodic payment Mr. Bean needs to make.

Using a calculator, the computed value for P is approximately $2,637.76.

Therefore, the quarterly payment required on the loan is approximately $2,637.76.