Finance homework help
Business & Finance

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2. A smallbusiness 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 smallbusiness 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
r(1+r)^n
M=P
(1+r)^n  1
0.00833(1+0.00833)^84
M=(81319.50)
(1+0.00833)^84  1
M=1350.00
Which you can verify with the MSExcel PMT formula:
Please let me know if you need any clarification. I'm always happy to answer your questions.
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