Question

1. What would be the monthly payment on a 5 year loan of $35,000 if the interest rate is 6.0% compounded monthly?

2. Sarah bought a raft for $664 using her credit card. The interst rate is 0.186 compounded monthly. If she pays $23 a month, how long will it take her to pay off the credit card?

3. What would be the monthly payment on a 5 year loan of $24,000 if the interest rate is 5.0% compounded monthly?

Answer 1

1.Information provided:

Present value= $35,000

Time= 5 years*12= 60 months

Interest rate= 6%/12= 0.50% per month

The monthly payment is computed by entering the below in a financial calculator:

PV= -35,000

N= 60

I/Y= 0.50                                                                                                                 

Press the CPT key and PMT to compute the monthly payment.

The value obtained is 676.65.

Therefore, the monthly payment is $676.65.

2. Information provided:

Present value= $664

Interest rate= 0.186%/12= 0.0155% per month

Monthly payment= $23

The time taken to pay off the credit card is calculated by entering the below in a financial calculator:

PV= -664

I/Y= 0.0155

PMT= 23

Press the CPT key and N to compute the time taken.

The value obtained is 28.94

Therefore, the time taken to pay off the credit card is 28.94 months.

In case of any query, kindly comment on the solution.