You borrow $20,000 for college at 4.5% annual interest compounded monthly. Find the monthly payment necessary to pay off the loan in 10 years.

Question

You borrow $20,000 for college at 4.5% annual interest compounded monthly. Find the monthly payment necessary to pay off the loan in 10 years.  This question is assuming you start repaying the loan right now after you borrowed $20,000. 

Answer 1

Hi Paul,

 

The formula for finding the payment on a loan is

 

i = monthly interest rate

A = amount borrowed

N = number of periods

P = monthly payment

 

P = iA / [1 − (1+i)^-N]

 

i = .045/12

A = 20000

N = 12 * 10 = 120

 

iA = 75

(1+i)^-N = .638165

 

P = 75/(1-.638165)

 

P = 207.28

 

Hope this helps