Question

In calculating the monthly payment for a five-year loan, what value should be used for n, the number of periods over which the loan is repaid, as it appears in the following formula?
P = P V times StartFraction i over 1 minus (1 + i) superscript negative n EndFraction
a.
5
b.
12
c.
60
d.
120

Answer 1

To calculate the monthly payment for a five-year loan, you need to determine the number of payment periods (n) over which the loan is repaid. Since the loan is for five years and payments are made monthly, you calculate n as follows:

Number of years = 5 years
Number of months per year = 12 months/year

So, the total number of months for the loan is:

\[ n = 5 \, \text{years} \times 12 \, \text{months/year} = 60 \, \text{months} \]

Thus, the value for n to use in the formula is **60**.

The correct answer is:

c. 60