Question

In calculating the monthly payment for a five-year loan, what value should be used for n, the number of periods over which the loan is repaid, as it appears in the following formula? P = P V times StartFraction i over 1 minus (1 i) superscript negative n EndFraction a. 5 b. 12 c. 60 d. 120.

Answer 1

The value should be used for n, the number of periods over which the loan is repaid in 60 periods.

We have to determine

In calculating the monthly payment for a five-year loan, what value should be used for n, the number of periods over which the loan is repaid, as it appears in the following formula?

What formula is used to calculate the monthly payment?

The value of the monthly payment is given by;

$\rm P=PV\times \dfrac{i}{1-(1+i)^{-n}}$

Where,

• PV is the present value or the amount of the loan.

• i is the interest rate per period and is calculated by dividing the yearly percent rate by 100 and by the number of periods in a year.

• n is the total number of periods and is calculated as the product of the number of periods in a year times the number of years.

Therefore,

The value should be used for n, the number of periods over which the loan is repaid;

n = 6 years × 12 months/year = 60 months = 60 periods.

Hence, The value should be used for n, the number of periods over which the loan is repaid in 60 periods.

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