What am I missing?

Question

p = ar / 1 - (1 + r)^-n

where p is the payment per period, a is the loan amount, r is the interest rate per period, and n is the total number of periods throughout the life of the loan.

a = 80000
r = 0.05
life of loan = 30 years
per period = 12

Now the answer is 429.46. How do we get that answer from the formula or is the forula missing something?

Answer 1

I think that the stated r = 0.05 means 5% per year, but in this formula the r value must be, in this case, one twelfth of that.

Monthly payments for 30 years means 360 = n.

 

Try the calculation with these facts.

 

-------------------------------- You have posted $429.46.  as 'correct answer' and I agree.

 

What you must understand is that the entirety of the denominator is what appeared after the / symbol that you typed when giving the formula.  All of that should be enclosed in square brackets (or parentheses, if you prefer).

 

payment = 0.05/12(80,000) ÷ [ 1 - (1+0.05/12)^-360] = 429.46.