The loan will have a term of 54 months and monthly payments of $385.13. The interest rate on the loan is 8.84% compounded quarterly. What is the amount of money that was borrowed?

Question

Quizplus · Accepted Answer

We can use the formula for the present value of an ordinary annuity to solve for the amount borrowed:
PV = PMT [(1 - (1 + r/n)^(-nt))/(r/n)]
where PV is the present value, PMT is the monthly payment, r is the annual interest rate, n is the number of times the interest is compounded per year, and t is the total number of payments.

Substituting the given values, we get:
PV = 385.13 [(1 - (1 + 0.0884/4)^(-(54*4)))/(0.0884/4)]

PV = $17,130.71

Therefore, the amount of money that was borrowed is $17,130.71.

The Loan Will Have a Term of 54 Months and Monthly