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A student borrows $60,000 for business school at 6.5% stated annual interest with equal monthly payments over 10 years. Consider this as a loan with no payments or interest during school so that the problem structure is equivalent to a standard loan received one period before the first payment. How much is the monthly payment?

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sqdancefan

Answer:

  $681.29

Explanation:

The amortization formula seems to apply. The monthly payment on a loan of P at rate r for t years is ...

  A = P(r/10)/(1 -(1 +r/12)^(-12t))

For the given loan parameters, the monthly payment is ...

  A = $60,000(0.065/12)/(1 -(1 +0.065/12)^(-12·10)) ≈ $681.29

The monthly payment is $681.29.