Question

You go to your local bank to borrow $5,680 to buy a used BMW. Your loan will require monthly payments for 4 years at 6.00 percent interest compounded monthly.

What is the amount of your monthly loan payment?

Answer 1

Monthly payment	=	[P × R × (1+R)^N ] / [(1+R)^N -1]
Using the formula:
Loan amount	P	$                                                              6,840
Rate of interest per period:
Annual rate of interest		6.000%
Frequency of payment	=	Once in 1 month period
Numer of payments in a year	=	12/1 =	12
Rate of interest per period	R	0.06 /12 =	0.5000%
Total number of payments:
Frequency of payment	=	Once in 1 month period
Number of years of loan repayment	=	4
Total number of payments	N	4 × 12 =	48
Period payment using the formula	=	[ 6840 × 0.005 × (1+0.005)^48] / [(1+0.005 ^48 -1]
Monthly payment	=	$                                                            160.64

Monthly payment is $160.64

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