Question

You are financing a new car with a 3 year loan at 5% annual interest, compounded

monthly. The amount you are borrowing is $16,000. What are your monthly payments?

Answer 1

Borrowed amount (P) = $16000

Annual Interest = 5% = 0.05

Since, it is monthly compounded, monthly interest = Annual interest/12

Monthly Interest (R) = 0.05/ 12 = 0.00417

No.of payments = 3 years * 12 months

Therefore, no.of monthly payments (N) = 36

Calculation of EMI:

$EMI = P * R * \frac{(1+R)^{N}}{(1+R)^{N}-1}$

$EMI = 16000 * 0.00417 * \frac{(1+0.00417)^{36}}{(1+0.00417)^{36}-1}$

$EMI = 66.72 * \frac{(1.162)}{(1.162)-1}$

1.162 EMI = 66.72 * 0.162

Therefore, the monthly payment is $479.563