Calculate the monthly payment for a $2,500 loan at 10% annual interest for two years.
Use the formula, M=Pm(1+m)na(1+m)na−1
(1 point)
Responses
$85.15
$115.40
$125.72
$138.48
To calculate the monthly payment for a loan using the formula M=Pm(1+m)na(1+m)na−1, where P is the principal amount, m is the monthly interest rate, and n is the number of payments, we first need to convert the annual interest rate to a monthly interest rate.
The formula to calculate the monthly interest rate is:
m = annual interest rate / 12 / 100
Using the given annual interest rate of 10%, we can calculate the monthly interest rate:
m = 10 / 12 / 100 = 0.008333333
Next, we need to calculate the total number of payments. Since the loan term is two years, and there are 12 months in a year, the total number of payments will be:
n = 2 * 12 = 24
Now we can calculate the monthly payment using the formula:
M = P * (m * (1+m)^n) / ((1+m)^n - 1)
Plugging in the values:
M = 2500 * (0.008333333 * (1+0.008333333)^24) / ((1+0.008333333)^24 - 1)
Calculating this expression gives us:
M ≈ $115.40
Therefore, the monthly payment for a $2,500 loan at 10% annual interest for two years is approximately $115.40.