Tom wants to borrow $15,000 in order to expand Tom's Wear.If he repays the money in forty equal monthly installments,he can get an interest rate of 6%.What would be the amount of each installment payment?
A)$375.00
B)$397.50
C)$996.93
D)$414.68

Question

Quizplus · Accepted Answer

To find the monthly installment payment for a loan, we can use the formula for the monthly payment on an amortizing loan: $P = \frac{rPV}{1 - (1 + r)^{-n}}$, where P is the monthly payment, r is the monthly interest rate (annual rate divided by 12), PV is the present value or amount of the loan, and n is the number of payments. Here, the annual interest rate is 6%, so the monthly interest rate is $0.06/12 = 0.005$, the amount of the loan (PV) is $15,000, and the number of payments (n) is 40. Plugging these values into the formula gives: $P = \frac{0.005 \times 15000}{1 - (1 + 0.005)^{-40}}$, which calculates to approximately $414.68.

Tom Wants to Borrow $15,000 in Order to Expand Tom's