Problem 5-40 Loan Payments (LG5-9) You wish to buy a $10,800 dining room set. The furniture store offers you a 3-year loan with an APR of 10.8 percent. What are the monthly payments

Required monthly payments = $352.556

Explanation:

Loan Amortization: A loan repayment method structured such that a series of equal periodic installments will be paid for certain number of periods to offset both the loan principal amount and the accrued interest.

The monthly installment is computed as follows:

Monthly installment = Loan amount/annuity factor

Loan amount; 10,800

Annuity factor = (1 - (1+r) ^ (-n)) / r

r - monthly rate of interest, n - number of months

r - 10.8%/12 = 0.9 % = 0.009, n = 3 * 12 = 36

Annuity factor = (1 - (1+0.009) ^ (-36)) / 0.009 = 30.6334

Monthly installment = Loan amount / annuity factor

= 10,800/30.6334 = 352.556

Required monthly payments = $352.556