Question

Calculate the monthly payment for a loan of $7,500 with an 11% interest rate compounded monthly over a period of 5 years.
a. $128.46
b. $163.07
c. $858.18
d. $1541.50

Answer 1

b is the correct answer to the problem.

Answer 2

Answer:

Option b - $163.07

Step-by-step explanation:

Given :  A loan of $7,500 with an 11% interest rate compounded monthly over a period of 5 years.

To find : Monthly payment

Solution : Formula to find monthly payment

Monthly Payment = Amount / Discount factor

Discount factor $D=\frac{1-(1+i)^{-n}}{i}$

where ,

Amount = $7500

Rate= 11%=0.11

$i = \frac{0.11}{12}=0.0091$

Time = 5 years

$n=5\times12= 60$

Now, put i and n in Discount factor ,

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

$D=\frac{1-(1+0.009)^{-60}}{0.009}$

$D=\frac{1-(1.009)^{-60}}{0.009}$

$D=\frac{0.421}{0.009}$

$D=46.77$

Monthly payment,

$M=\frac{A}{D}$

$M=\frac{7500}{46.77}$

$M=163.07$

Therefore, Option b is correct monthly payment = $163.07