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1 July, 11:02

You borrow $8000 to buy a car, at an annual interest rate of 6%. Assume interest is compounded continuously. You make monthly payments (approximate as continuous payments).

How much should you pay each month to pay off the loan in 3 years?

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  1. 1 July, 12:43
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    We should pay $243.3 each month to pay of the loan.

    Explanation

    The present value of the loan is 8,000, the number of compounding periods are (3*12) = 36 because payment is going to be made monthly for 3 years, the future value of the loan is 0 as there will be no lump sum payment at the end of the loan and equal payments each month, the monthly interest rate is 6%/12 = 0.5%. We input these 4 values to find the monthly payment.

    PV = 8,000

    FV=0

    N=36

    I=0.5

    Compute PMT = 243.3
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