Suppose a student loan has an interest rate of 7% compounded monthly with monthly payments and the borrower has 10 years to repay. If $12,000 is borrowed, what are the monthly payments?
A) $95.46
B) $139.33
C) $169.53
D) $290.15

Question

Quizplus · Accepted Answer

Using the formula for monthly payments on a loan:

P = (r(PV))/(1 - (1+r)^(-n))

Where:
P = monthly payment
r = monthly interest rate (0.07/12)
PV = present value (borrowed amount) = $12,000
n = number of months (10 years = 120 months)

Plugging in these values, we get:

P = (0.00583(12000))/(1 - (1+0.00583)^(-120))
P ≈ $139.33/month

Suppose a Student Loan Has an Interest Rate of 7