Chapter 2, Problem 38P

Suppose you are borrowing $25,000 and making monthly payments with 1% interest. Show that the monthly payments should equal $556.11. The key relationships are that for any month t

(Ending month t balance) = (Ending month t − 1 balance) − ((Monthly payment) − (Month t interest))

(Month t interest) = (Beginning month t balance) × (Monthly interest rate)

Of course, the ending month 60 balance must equal 0.