Question

"What will be the required monthly payment to repay a loan of $36,000 in 8 years if the interest rate is 11.35% compounded continuously?"

Answer 1

Given interest rate is 11.35% per annum.

Now since it is compounded continuously effective rate of interest would be e raised to the power of 11.35%. e is the Euler’s number or natural logarithmic base.

Now,

e^0.1135 = 1.12

Now we have to find monthly EMI /payment to be made. It can be found easily in MS-Excel by using PMT formula.

PMT formula asks for rate, nper (total number of payments for loan), and PV (present value or principal amount) as mandatory fields.

Here rate will be 1.12% , nper will be 8*12 = 96 and PV will be 36000.

Putting these values in the formula we get monthly payment as $613.96