Question

John takes out a loan for $ 12 , 000 at a simple interest rate of 5% to be paid back in 36 monthly installments. What is the amount of the monthly payments?CORRECTION: The interest rate is 7.9%.

Answer 1

Explanation

From the statement, we know that:

• John takes a loan for A₀ = $12,000,

,

• at a simple interest rate of r = 7.9% = 0.079per year,

,

• to be paid back in 36 monthly instalments.

1) The total amount to be paid is given by:

$A=A_0\cdot(1+r\cdot n_{years})=\text{\ 12,000}\cdot(1+0.079\cdot3)=\text{\ 14,844.}$

2) The monthly payments are given by:

$m=\frac{A}{n_{months}}=\frac{\text{\ 14,844}}{36}\cong\text{\ 412.33.}$Answer

The monthly payments are $412.33.