Monthly payment

Question

Sheds R Us sells $300 sheds on a monthly payment plan over 2 years.

 

a) If the interest rate is 1.25% per month, find the monthly payment?

 

b) If instead the interest rate is 1.5% per month, find the monthly payment?

Answer 1

The equation to find the monthly payment for an installment loan is called the Equal Monthly Installment (EMI) formula. It is defined by the equation:

Monthly Payment = P*r*(1+r)ⁿ/((1+r)ⁿ -1)

 

 

r: Interest rate, in decimal form = 1.25/100 = 0.0125

P: principal loan amount (cost of the item) = 300

n: number of payments = 2yrs × 12 monthly payments = 24 payments

 

M = 300*0.0125*(1+0.0125)²⁴)/((1+0.0125)²⁴ -1)

 

M = 3.75*(1.0125)²⁴/((1.0125)²⁴ -1)

 

M = (3.75*1.347)(1.347 -1)

M = (5.053)(0.347)

M = 14.56

 

The monthly payment would be $14.56