Question

Jordan wants to check the accuracy of the finance charge on his promissory note. He has a $12,500, 5 year loan at an APR of 2.13%. What is this monthly payment?

Answer 1

The formula we can use to calculate the monthly payment is:

`A=P(r(1+r)^n)/((1+r)^n-1)`

Where

A is payment amount per period

P is the principal (initial) amount

r is interest rate per period

n is the total number of period

We want to figure out the monthly payment, so we need r and n in terms of months.

A is what we want to find.

P is 12,500

r is 2.13% per year or 2.13%/12 = 0.1775% per month [in decimal, 0.1775/100 = 0.001775]

n is 5 years, or, 5 * 12 = 60 months

Substituting and finding A: