Interest compounded monthly.

• Oct 17th 2010, 04:34 PM
flybynight
Interest compounded monthly.
Hey everyone,
I hope this is in the right section. Anyway, the problem I have is "a $200,000 loan is to be repaid over 20 years in equal monthly installments, beginning at the end of the first month. Find the monthly payment if the loan is at an annual rate of 9%, compounded monthly." Any help? Thanks, Peter • Oct 17th 2010, 04:53 PM financial$\displaystyle
200,000=A(1+\frac{.09}{12})^{12*20}
\$

Compounded monthly means each month the interest rate is one twelfth the yearly rate. And since you're compounding each month for twenty years, you compound it 12*20 times. Solve for A to find monthly installment.
• Oct 17th 2010, 05:37 PM
flybynight
So then monthly installment would be 33,282? The book says it should be 1799.45.
• Oct 17th 2010, 05:54 PM
financial
Quote:

Originally Posted by flybynight
So then monthly installment would be 33,282? The book says it should be 1799.45.

Hmm that number the book gives seems way off unless I'm missing something...
• Oct 17th 2010, 06:24 PM
Wilmer
1799.45 is correct.

P = 200000i / (1 - v)

i = .09 / 12
v = 1 / (1 + i)^240

To financial: you're using present value formula; you need payment formula.
• Oct 17th 2010, 11:32 PM
thekiterunner
i was web surfing one day and i found this great website that explained financial maths pretty well. it may help you out!

http://www.weallstartsomewhere.com/finmaths.php