Question

Heather is applying for a small business loan in the amount of $5,000 to be repaid over 18 months along carries and an annual interest rate of 3.75% what would Heather's monthly payment be for the loan

Answer 1

Apply the formula:

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

Where:

PV = loan amount = $5,000

PMT= Monthly payment = x

i = interest rate (decimal form) = 3.75/100 = 0.0375 /12 = 0.003125

n= number of months = 18

Replacing:

$5,000=\frac{x}{0.00375}(1-\frac{1}{(1+0.00375)^{18}})$

Solve for x

$5,000=\frac{x}{0.00375}\text{ (0.065)}$$\frac{5000}{0.065}=\frac{x}{0.00375}$$76,740.9466=\text{ x/0.00375}$

$76,740.9466(0.00375)=x$$x=286.10$