A commercial bank will loan you $7,500 for two years to buy a car. The loan must be repaid in 24 equal monthly payments. The annual interest rate on the loan is 12% of the unpaid balance. What is the amount of the monthly payments

$353.05

Explanation:

To calculate this, the loan amortization formula is employed as follwow:

P = {A × [r(1 + r)^n]} ÷ {[(1+r)^n]-1} (1)

Where,

P = Monthly required payment = ?

A = Loan amount = $7,500

r = monthly interest rate = (0.12 ÷ 12) = 0.01

n = number of payment period = 24 months

Substituting all the figures into equation (1), we have:

P = {7,500 × [0.01(1 + 0.01)^24]} ÷ {[(1 + 0.01)^24]-1} = $353.05

Therefore, the amount of monthly payments is $353.05.

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