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14 June, 11:43

A loan of 125,000 will be repaid by payments at the end of each month over 30 years. Payments for a given year are level and are 2 percent greater than those for the previous year. The monthly payment for the first year is P. The effective annual interest rate is 5 percent. Calculate P.

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  1. 14 June, 12:42
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    P = 10,937.50

    Step-by-step explanation:

    Since the annual interest rate is 5%, we'll have

    125000 * 5/100 = 6250

    Therefore the total amount to be paid in the first year is [ 125000 + 6250 = 131250]

    If P is the monthly payment for first year, to get P we divide the amount to be paid in the first year by the total number of months in a year.

    I. e [ P = 131250/12], Therefore we have:

    P = 131250 / 12months

    P = 10937.5
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