Question 1170456: You borrow $27,000 with a term of two years at an APR of 5%. Use the Estimation Rule for Short-Term Loans to estimate your monthly payment. (Round your answer to the nearest cent.)
Answer by CPhill(1959)   (Show Source):
You can put this solution on YOUR website! Let's break down the Estimation Rule for Short-Term Loans and apply it to this problem.
**Estimation Rule for Short-Term Loans:**
The estimation rule provides an approximate monthly payment for short-term loans. The formula is:
Monthly Payment ≈ (Total Loan + Total Interest) / Number of Months
**1. Calculate the Total Interest:**
* **Loan Amount (P):** $27,000
* **Annual Percentage Rate (APR) (r):** 5% or 0.05
* **Loan Term (t):** 2 years
Total Interest = P * r * t
Total Interest = $27,000 * 0.05 * 2
Total Interest = $2,700
**2. Calculate the Total Loan Amount:**
Total Loan Amount = Loan Amount + Total Interest
Total Loan Amount = $27,000 + $2,700
Total Loan Amount = $29,700
**3. Calculate the Number of Months:**
Number of Months = Loan Term (years) * 12
Number of Months = 2 * 12
Number of Months = 24
**4. Estimate the Monthly Payment:**
Monthly Payment ≈ Total Loan Amount / Number of Months
Monthly Payment ≈ $29,700 / 24
Monthly Payment ≈ $1237.50
**Therefore, the estimated monthly payment is $1237.50.**
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