Question

You can use the formula P=A(i/1-(1+i)-n) monthly payment on a loan of A dollars that is paid back in equal monthly payments over n months. The variable i represents (annual interest rate 12). Seki has a $4,000 student loan with an 8% annual interest rate which he is scheduled to pay off in 10 years. Use the formula and a calculator to find Seki’s monthly payment.

Answer 1

Answer:

$48.54

Explanation:

We must express the interest rate on a monthly basis.

i = 8 %/yr = 0.6667 %/mo = 0.006 667

A = $4000

n = 120 mo

$P = A(\frac{i}{1-(1+i)^{-n}})$

$P = 4000(\frac{0.006667 }{1-(1+0.006667)^{-120}})$

$P = \frac{26.67}{1-0.006667^{-120}}$

$P = \frac{26.67}{1-0.4505}$

$P = \frac{26.67}{0.5495}$

P = 48.531

The banks round up the numbers, so Seki’s monthly payment is $48.54.