How much would your monthly payment be on a 4-year loan if the following assumptions were true?You borrowed $5,000.The fixed APR on the loan is 3.2%. Note: A fixed APR is an annual interest rate that does not change during the 4-year period.You will make equal monthly payments to repay both the loan amount and the monthly interest charges.You want to completely pay off the loan in exactly 4 years.Group of answer choices$205.26 per month$1,258.34 per month$255,673.86 per month$111.11 per month
Question
How much would your monthly payment be on a 4-year loan if the following assumptions were true?You borrowed 205.26 per month255,673.86 per month$111.11 per month
Solution
To calculate the monthly payment for a loan, you can use the loan payment formula which is P = [r*PV] / [1 - (1 + r)^-n], where:
- P is the monthly payment
- r is the monthly interest rate (annual rate / 12)
- PV is the present value, or the amount of the loan
- n is the number of payments (months)
Given the values:
- PV = $5,000
- r = 3.2% per year = 0.032/12 per month = 0.00267 per month
- n = 4 years = 4*12 months = 48 months
Substitute these values into the formula:
P = [0.00267 * 5000] / [1 - (1 + 0.00267)^-48] P = 13.35 / 0.0651 P = $205.26 per month
So, the monthly payment would be $205.26.
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