Question

When a loan officer speaks to people about a loan for a certain principal, P, at a certain monthly rate, r, they always have to balance two quantities, the monthly payment, m, with the number of payments, n, it takes to pay off the loan. These two vary inversely. All of these quantities can be related by the formula:

Answer 1

Answer:

$M= \frac{Pr}{1-(1+r)^{-n}}$

Step-by-step explanation:

When you take a loan, the amount collected is referred to as the Principal(P).

The loan is given at a certain rate(r) in this case a Monthly Rate for a period of n months. The Monthly payment is denoted using M.

All these variables are related by the function:

$M= \frac{Pr}{1-(1+r)^{-n}}$

Note that if the rate is given as an Annual rate, we divide by 12 to get the monthly rate required.