5. Given below is the principal owed on a student loan last month, the annual interest rate, and the way the minimum monthly payment is computed. Find this month's minimum payment due. Annual Rate Method for Calculating Minimum Monthly Payment Principal $27,600 9% finance charge + $20 +3.5% of principal This month's minimum payment is $ (Round to the nearest cent as needed.)
5. Given below is the principal owed on a student loan last month, the annual interest rate, and the way the minimum monthly payment is computed. Find this month's minimum payment due. Annual Rate Method for Calculating Minimum Monthly Payment Principal $27,600 9% finance charge + $20 +3.5% of principal This month's minimum payment is $ (Round to the nearest cent as needed.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Use the chart and find the months minimum payment.
Transcribed Image Text:### Calculating the Minimum Monthly Payment on a Student Loan
#### Problem Statement
Given below is the principal owed on a student loan last month, the annual interest rate, and the way the minimum monthly payment is computed. Find this month's minimum payment due.
#### Table of Information:
| **Principal** | **Annual Rate** | **Method for Calculating Minimum Monthly Payment** |
|---------------|-----------------|----------------------------------------------------|
| $27,600 | 9% | finance charge + $20 + 3.5% of principal |
#### Steps to Solve:
1. **Calculate the Finance Charge:**
- The finance charge can be calculated using the annual interest rate. Since the interest rate is annual, we need to convert it to a monthly rate.
- Monthly interest rate = Annual rate / 12
- Monthly interest rate = 9% / 12 = 0.75%
2. **Calculate the Monthly Interest Amount:**
- Monthly interest amount = Principal * Monthly interest rate
- Monthly interest amount = $27,600 * 0.0075 = $207
3. **Calculate 3.5% of the Principal:**
- 3.5% of Principal = Principal * 3.5%
- 3.5% of Principal = $27,600 * 0.035 = $966
4. **Add All Components to Find Minimum Monthly Payment:**
- Minimum monthly payment = Finance charge + $20 + 3.5% of Principal
- Minimum monthly payment = $207 + $20 + $966 = $1,193
5. **Round to the Nearest Cent (if necessary):**
- In this case, the amount is already rounded to the nearest cent.
#### Result:
- This month's minimum payment is **$1,193**.
#### Instructions:
- Round to the nearest cent as needed.
This analysis will help students understand how to compute monthly payments on a student loan using the given information about the principal, annual interest rate, and payment calculation method.
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