Suppose that you need $2500 to cover an unexpected expense. If you are applying for a discounted loan at an interest rate of 5% per year for 2 years, what is the monthly payment?
A) $114.58
B) $115.74
C) $116.43
D) $117.28

Question

Quizplus · Accepted Answer

To find the monthly payment, we need to use the formula:

Monthly payment = Total loan amount x monthly interest rate / (1 - (1 + monthly interest rate)^(-total number of payments))

Where:
Total loan amount = $2500
Annual interest rate = 5%
Monthly interest rate = 5% / 12 = 0.004167
Total number of payments = 2 years x 12 = 24

Plugging in these values, we get:

Monthly payment = $2500 x 0.004167 / (1 - (1 + 0.004167)^(-24)) = $115.74

Therefore, the answer is B.

Suppose That You Need $2500 to Cover an Unexpected Expense