Question

You want to buy a car, and a local bank will lend you $20,000. The loan will be fully amortized over 5 years (60 months), and nominal annual interest rate will be 6%. What will be the monthly loan payment?

Answer 1

Monthly installment= $168.77

Step-by-step explanation:

Loan amortization is a loan repayment arrangement where a loan is repaid using a series of equal installments over the years of the loan. Each installment covers the interest due and a portion of the principal balance

The monthly installment = Loan amount/monthly annuity factor

Annuity factor = (1 - (1+r)^(-n))/r)

r - monthly interest rate, n- number of months

Monthly interest rate = 6%/12= 0.5%

Number of months = 15× 12 = 180

Annuity factor = ( 1-(1.005)^(-180))/0.005

= 118.50

Monthly installment = 20,000/168.771

= $168.77

Answer:

Monthly installment= $168.77