Question

Kim has just graduated from law school. She had taken an education loan of $45,000, which now needs to be repaid in equal monthly installments over the next 6 years. The amount of the monthly loan payment, if the loan carries a simple annual interest of 5% is closest to:

Answer 1

Answer:

Monthly installment is $724.72

Explanation:

Given:

Amount of loan (PV) = $45,000

Time period (nper) = 6 years or 6×12 = 72 months

Since amount need to be repaid in equal monthly installment

Annual interest = 5% or 0.05

Monthly interest (rate) = 0.05 ÷ 12 = 0.0041667

Calculate monthly installment (pmt) using spreadsheet function =pmt(rate,nper,PV)

Monthly installment is $724.72

Pmt is negative as it is a cash outflow.