May takes out a conventional loan to purchase a car. The interest rate is 6.8% compounded monthly and May has six years to repay the $10,000 she borrowed. What are May's monthly payments?

Question

Quizplus · Accepted Answer

To calculate May's monthly payments for a conventional loan, we use the formula for a fixed-rate loan payment: P = [r*PV] / [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 principal amount of the loan, and n is the total number of payments (months). Here, r = 6.8% annual interest rate / 12 = 0.568% or 0.00568 as a decimal, PV = $10,000, and n = 6 years * 12 months/year = 72 months. Plugging these values into the formula gives a monthly payment of approximately $169.53.

May Takes Out a Conventional Loan to Purchase a Car