Posted by **MathHelp ** on Tuesday, October 4, 2011 at 10:57pm.

A person takes out a monthly installment loan of $2000 with an annual percentage rate of 13.0% if the person can afford no more than $70 per month, then which of the following terms are feasible? a) 8 months b ) 12 months c) 18 months d) 24 months e) 36 months

- math -
**Steve**, Wednesday, October 5, 2011 at 5:06am
Massaging the formula for the monthly payment

M = Pr/(1-(1+r)^-n) gives

n = log(M/(M-Pr)) / log(1+r)

With r = .13/12 = 0.010833333

M = 70

P = 2000

M/(M-Pr) = 70/(70 - 2000 * 0.01083333) = 1.448

log 1.448/log 1.010803333 = 34.3, so the 36 month term looks good.

You can also ballpark this by estimating:

13%/year is about 1%/month. 1% of 2000 is 20.

So, the payments start out with $20 interest, leaving $50 going to principal.

2000/50 = 40, which is bigger than 36, but later payments include less interest, so the term would be less than 40. 36 is the best choice.

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