Question

Tony has taken out a $15,000 student loan. If the interest rate on this loan is 5%, compounded monthly, the term of the loan is 10 years, how much will be Tony’s monthly payments on the student loan?

Answer 1

We can calculate the Monthly instalment by using the below Formula

EMI Amount = [P x R x (1+R)^N]/[(1+R)^N-1]

Where, P = Loan amount or Principal Amount = $15,000

R = Interest rate of Loan (monthly rate) = [(5/12) x 100] or [0.05/12]

N = No of monthly installments = 10 years x 12 = 120 Instalments

EMI Amount = [P x R x (1+R)^N] / [(1+R)^N-1]

= $15,000 x [0.05/12] x (1+ 0.05/12 )¹²⁰/ (1+ 0.05/12 )¹²⁰-1

= $15,000 x [0.05/12] x 1.647 / 1.647-1

= $15,000 x [0.05/12] x 1.647 / 0.647

= $159.10

Hence Tony has to pay $159.10 per month for the next 10 years