Question

Brenda took out a personal loan for $12,000 at an interest rate of 12% compounded monthly. She made arrangements to pay the loan off in 5 years. What will her monthly payment be?

Answer 1

Answer: her monthly payments would be $267

Step-by-step explanation:

We would apply the periodic interest rate formula which is expressed as

P = a/[{(1+r)^n]-1}/{r(1+r)^n}]

Where

P represents the monthly payments.

a represents the amount of the loan

r represents the annual rate.

n represents number of monthly payments. Therefore

a = $12000

r = 0.12/12 = 0.01

n = 12 × 5 = 60

Therefore,

P = 12000/[{(1+0.01)^60]-1}/{0.01(1+0.01)^60}]

12000/[{(1.01)^60]-1}/{0.01(1.01)^60}]

P = 12000/{1.817 -1}/[0.01(1.817)]

P = 12000/(0.817/0.01817)

P = 12000/44.96

P = $267