Determine the monthly payment of a loan for $3,000 at 7.5% interest compounded monthly for 36 months.

a.

$93.32

b.

$95.40

c.

$211.33

d.

$253.60

To answer this question, convert the annual interest rate into effective interest rate by the equation,

ieff = (1 + i/12) ^12 - 1

Substituting the unknown gives ieff = 7.76% annual which is equal to 0.647% monthly. To calculate for the monthly payment, use the equation

A = P ((i x (1 + i) ^n) / ((1 + i) ^n - 1)

Use 36 for n and 0.647% for i. Substituting all the unknowns will give an answer of $93.68 which is very near to letter A.