You borrow $7,000 today and promise to repay the loan over the next three years with 36 equal, end-of-month payments starting one month from today.

You borrow $7,000 today and promise to repay the loan over the next three years with 36 equal, end-of-month payments starting one month from today. The interest rate is 4% APR compounded monthly. What is the amount of each payment? Round only your final answer to two decimal places.

• $206.67

• $194.44

• $214.98

• $202.19

• $223.86

Solutions

Expert Solution

The right option is (a).

Explanation:

Monthly payment = Loan amount * (interest rate / compounding frequency) / (1 - (1 + (interest rate / compounding frequency))-no of periods)

Monthly payment = $7000 * (4% / 12) / (1 - (1 + (4% / 12))-36)

Monthly payment = $206.67

(a) is right option.

Hence, the option (a) is right option.

Junaid answered 1 year ago

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