+36916 Well.....the total PAYBACK HAS to at LEAST equal the amount of the loan....plus interest....the only choice is "D" because the other answers are all LESS than the original loan amount !
First, you calculate the monthly payment using the formula given in your question as follows:
M = Monthly payment
P = Present value of the loan or $2,500
m=monthly interest rate =10% =0.10 / 12 =0.008333....
a = Number of years
n = Number of compounding periods in 1 year =12
M =2,500 x 0.008333.. x [1 + 0.008333]^(2*12) / [1 + 0.008333]^(2*12) - 1
M =20.8333...x [1.220391] / [1.220391 - 1]
M =20.8333...x 5.53739116
M =$115.36 - The monthly payment on the loan.
$115.36 x 24 months =$2,768.64 - Total payback for $2,500 loan @ 10%.
Note: The discrepancy of about $1 is due to rounding off.
