Answer to Question #288945 in Economics of Enterprise for Daemus

Question

Mr. Ayala borrows 100,000 at 10% effective annual interest. He must pay back the loan over 30 years with uniform monthly payments due on the 1st day of each month. What does Ayala pay each month? 

Answer 1

Borrowed fund = 100,000

Effective annual interest = 10%

Loan period = 30 years

Monthly interest rate = 0.007974

Total number of payments = 360

Then, monthly payment (EMI) will be:

$EMI=100000\times \frac{0.007974 \times(1+0.007974)^{359}}{(1+0.007974)^{359}-1}$

$EMI=839.19$