Question

You borrow $80,000. You make monthly repayments over the next three years at a monthly interest rate of 3%. What is the amount of each monthly repayment?

a) $3,664.30

b) $28,282.43

c) $2,326.50

d) $26,800.11

Answer 1

Equated Monthly Installment (EMI) is calculated by the following formula

EMI = [P x R x (1+R)^N]/[(1+R)^N-1]

Where,

P = Principal amount borrowed = $80,000

R = Monthly rate of interest = 3% or 0.03

N = Number of months = Number of years x 12

= 3 x 12 = 36

So, EMI

= [ $80,000 x 0.03 x ( 1.03 ^ 36)] / [ (1.03 ^ 36) – 1]

= [ $2,400 x 2.898278] / [ 2.898278 – 1]

= $3,664.30

So, as per above calculations, option a is the correct option