An individual borrowed $100 000 at a fixed interest rate of 12% p.a.for the entire loan term of 20 years.If the loan is to be repaid through equal monthly instalments,then the regular repayment to the nearest dollar is $1101.

Question

Quizplus · Accepted Answer

We can use the formula for calculating the monthly payment on a loan based on its principal, interest rate, and term:

PMT = P * r * (1+r)^n / [(1+r)^n - 1]

where PMT is the monthly payment, P is the principal (the amount borrowed), r is the monthly interest rate (the annual rate divided by 12), and n is the total number of payments (the term multiplied by 12).

Plugging in the given values, we get:

PMT = 100000 * 0.01 * (1+0.01)^240 / [(1+0.01)^240 - 1]
    ≈ 1100.65

Rounding to the nearest dollar, the regular repayment is $1101. Therefore, the statement is true.

An Individual Borrowed $100 000 at a Fixed Interest Rate