Question

Using technology, determine the monthly payment on a 35 month loan of $28,000 at 8.1% compounded annually. Round you answer to the nearest cent.
a. $900.90
b. $875.02
c. $1,10
d. $1,0122.94.10

Answer 1

The wording of the question is somewhat unusual. Loan interest is usually figured each month on the remaining balance that month. In effect, it is compounded monthly. The wording "compounded annually" suggests a different scenario—one that is not supported by the answer choices.

If loan interest is only compounded annually, my "technology" tells me the monthly payment is $897.21. (See the first attachment. Note "compoundings per year" (C/Y) = 1.)

If loan interest is compounded monthly, as is the usual case, the monthly payment is $900.90. (See the second attachment. Note C/Y = 12.)