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.

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