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
a. $85.15
b. $115.40
c. $125.72
d. $138.48
To calculate the monthly payment for a loan using the formula M=Pm(1+m)^na/ (1+m)^na-1, where M is the monthly payment, P is the loan amount, m is the monthly interest rate, and na is the number of monthly payments:
First, convert the annual interest rate to a monthly interest rate by dividing it by 12: 10% / 12 = 0.00833
Next, calculate m by adding 1 to the monthly interest rate: 1 + 0.00833 = 1.00833
The number of monthly payments for a 2-year loan is 2 * 12 = 24.
Now, plug in the values into the formula:
M = 2500 * 0.00833 * (1+0.00833)^24 / (1+0.00833)^24 - 1
M = 2500 * 0.00833 * (1.00833)^24 / (1.00833)^24 - 1
M = 2500 * 0.00833 * 1.2262559 / 1.2262559 - 1
M = 20.61 / 0.2262559
M = 91.06
Therefore, the monthly payment for a $2,500 loan at 10% annual interest for two years is approximately $91.06, which is not one of the available options.