For a certain installment loan, the monthly payment M is given by M = Pr(1 + r)t (1 + r)t - 1

Question

where P is the original amount borrowed, r is the monthly interest rate as a decimal, and t is the number of months required to pay off the loan. What is the monthly payment if the monthly interest rate as a decimal is 0.05, the amount borrowed was $17,000, and the loan is paid off in 30 months? (Round your answer to two decimal places.)

I have plugged in the correct numbers but I keep coming up with the wrong answer. Help please!

Answer 1

The formula as written has all of the correct symbols, but it's missing some important stuff.

M = Pr(1+r)^t / [(1+r)^t - 1] looks like the equation you are using.

First, are you sure that the MONTHLY interest rate is 0.05?  That's 60% annual interest!

Try r = 0.05 / 12 to convert a 5% annual interest rate to the monthly rate.
It could also be 0.005 monthly for a 6% annual rate.  Check your problem statement.

I get 604.00 using this formula and 5% annual interest.

 

Answer 2

I am guessing that there are parenthesis missing somewhere in your equation for M

It makes no sense to just subtract 1 at the end.  Please check the equation and get back so we can solve your problem.   

Answer 3

Hi, Elizabeth.

I think you may be missing the division sign in your problem. The monthly payment formula is usually written:

M = P(1+r)^t r / [(1+r)^t-1]

Plugging in the numbers provided we get:

M = 17,000(1.05)³⁰ (.05) / [(1.05)³⁰ - 1]

Remember your order of operations - we have to simplify the exponents first:

M = 17,000(4.321942)(.05) / [4.321942 - 1]

M = 3673.651019 / 3.321942

M = 1105.874396   or rounded to 2 decimal places,  $1105.87

If you are entering it into a graphing-type calculator, be sure to put the denominator inside of parentheses or the calculator will do the multiplication and division first, and subtract 1 at the end.

Hope this helps!