2. A small-business owner has a debt of $81, 319.50 at a rate of 10%. The goal is to pay off this debt in 7 years. What should the monthly payment be in order to meet this goal?

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Q) A small-business owner has a debt of $81, 319.50 at a rate of 10%. The goal is to pay off this debt in 7 years. What should the monthly payment be in order to meet this goal?

A) Understand the equation. In order to calculate the monthly payment, we can rely on a relatively simple equation. The monthly payment equation can be represented as follows:

r(1+r)^n M=P------------ (1+r)^n - 1

These variables represent the following inputs:

M is your monthly payment. P is your principal. r is your monthly interest rate, calculated by dividing your annual interest rate by 12. n is your number of payments (the number of months you will be paying the loan) ^ implies exponent (i.e. 2^3 = 2*2*2 )

For your question the known values are:

Payments are to be based on making a monthly payment P = 81319.50 r = (10%/12) = (0.1/12) = 0.00833 n = (7 years * 12 months/year) =(7*12)(years * months/years) = 84 months