Question

You need to borrow $18,500 to buy a truck. The current loan rate is 9.5% compounded monthly and you want to pay the loan off in equal monthly payments over five years. What is the size of your monthly payment?

Answer 1

Given that ,

amount to be Borrowed= $18500

Interest rate= 9.5% compounded monthly

Time period= 5years

we are required to calculate the monthly installments,

To find the amount using compound Interest A= P(1+r/n)^nt

Where,

P=principal

r= rate of interest

n=number of time interest is compounded, here monthly

t= Time period

So, the value to be paid (A)= P*(1+r/n)^nt

which will be A= 18500*(1+0.095/12)^(12*5)

so, the total value is 29692.68

We are asked to find the monthly instalment payable (given that all instalments are equal for five years).

so, for 5 years we will have 5*12= 60 monthly installments.

Instalment payable monthly= $494.8779

To verify it , we consider total instalment is 60 , so (60*494.8779) = 29692.68 which is our total amount payable.