Answer:
b. $97.25
Step-by-step explanation:
Your number sense tells you a loan of this duration will have a monthly payment not much greater than $5000/60 ≈ $83. Of the offered answer choices, $97.25 is the most reasonable guess.
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If you work this out using a financial calculator, it will tell you the monthly payment is $97.25.
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<em>Additional comment</em>
As a first approximation, the interest paid on an amortized loan is about half of the simple interest amount. We can guess at the monthly payment by computing the payment on a simple interest loan at half the rate.
The total due on a $5000 loan at 3.125% interest is ...
A = P(1 +rt) = 5000(1 +5(0.03125)) = 5000(1.15625) = 5781.25
If 1/60 of that is paid each month, the payment is about $96.35. This guess is within 10% of the actual payment value. With suitable approximations, you can do this calculation without a calculator.
