Suppose a student loan has an interest rate of 5.8% compounded monthly with monthly payments and the borrower has 10 years to repay. If $35,000 is borrowed, what are the monthly payments?
A) $385.07
B) $305.21
C) $186.49
D) $171.48

Question

Quizplus · Accepted Answer

Using the formula for monthly payments on a loan:
P = (r(PV))/(1-(1+r)^(-n))
where P is the monthly payment, r is the monthly interest rate (0.058/12), PV is the present value of the loan ($35,000), and n is the number of monthly payments (10*12).

P = (0.00483*35000)/(1-(1+0.00483)^(-120)) = 385.07

Therefore, the monthly payment is $385.07, which corresponds to answer choice A.

Suppose a Student Loan Has an Interest Rate of 5