SOLUTION: Luis borrowed $125,700.00 in stafford and plus loans for his 3 years at USc Law school. During the 3 years of school, the loan amount rose to $132,110.70. The annual interest rat

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Question 256017: Luis borrowed $125,700.00 in stafford and plus loans for his 3 years at USc Law school. During the 3 years of school, the loan amount rose to $132,110.70. The annual interest rate is 2.3 % once he has graduated from law school. Luis is required to pay back the loans within 10 years. What is the minimum monthly payment that luis must make ? I'm having problems coming out with the correct answer... Thanks
Answer by Theo(13342) (Show Source):
You can put this solution on YOUR website!
Luis borrowed $125,700.00

during his 3 years of school, the loan amount increased to $132,110.70.

he has to pay back this loan in 10 years at 3.2% interest per year compounded monthly.

what are the monthly payments?

the formula you will want to use is the payment for a present value formula.

that formula is:

PMT = Payment per Time Period
PV = Present Value
i = Interest Rate per Time Period
n = Number of Time Periods

PV = Present Value = $132,110.70 which the amount of the loan that has to be paid back.

i = interest rate per time period = 3.2% / 100% = .032 / 12 = .0026666667

n = number of time periods = 10 years * 12 = 120 months.

your formula becomes:

this becomes:

PMT(PV) = 1287.903449.

monthly payments are 1287.903449 = $1,287.90

to confirm this answer is correct, you can plug it into the present value of a payment formula shown below:

PV = present value
PMT = payment per time period
i = interest rate per time period
n = number of time periods

PMT = 1287.903449
i = 3.2% / 100% = .032 / 12 = .0026666667 per month.
n = 10 * 12 months per year = 120 months.

formula becomes:

this becomes:

PV(PMT) = 132110.7

since this is what we started out with, the formula is good and the answer is:

your monthly payments are $1287.90.