Question

What would the monthly payment be for a $5,000 loan with a 6.25% interest rate compounded monthly spread over 60 months?
a.
$25.31
b.
$97.25
c.
$217.00
d.
$320.95

Answer 1

Use the loan amortization formula:
M = P * i / (1 - (1 + i)^-n)
with P = 5000, i = 0.0625/12 = 0.0052083333, n = 60.

M = 5000*(0.0625/12) / (1 - (1 + 0.0625/12)^-60) ≈ $97.25

Answer: b.