Question

Nicola borrows 50000 dollars from a bank that charges interest at an annual rate of 8 percent, compounded monthly. Calculate the monthly payment that Nicola would have to make in order for the loan to be paid off after exactly 25 years. (Give your answer, in dollars, to the nearest cent. You should not include the dollar sign or any commas in your answer.)

Answer 1

Answer: $387.23

Explanation:

Given that,

Borrowed from bank, P = $50,000

Annual interest rate, r = 8% = 0.08

Monthly rate of interest = $\frac{0.08}{12}$

                                       = 0.0067

Tenure(period), n = 25 years = 25 × 12

                                                = 300 months

$Monthly\ Installments=\frac{P\times r\times (1+r)^{n}}{[(1+r)^{n}-1]}$

$Monthly\ Installments=\frac{50,000\times 0.0067\times (1+0.0067)^{300}}{[(1+0.0067)^{300}-1]}$

$=\frac{50,000\times0.0067\times7.413453}{7.413453-1}$

$= \frac{2,483.50676}{6.413453}$

      = 387.23

Therefore, the required monthly payment is $387.23