Below is the formula for calculating monthly payments for a fixed-rate loan.

M=P (i (1+i) ^nt / (1+i) ^nt - 1)

Part 1: Explain what the following variables represent and how changing each one affects the monthly payment amount: P, i and t.

Part 2: Explain how changing each variable (P, i and t) affects the total cost of principal and interest over the life of the loan.

Question

Yoselin Lin

Mathematics

22 January, 15:31

Below is the formula for calculating monthly payments for a fixed-rate loan.

M=P (i (1+i) ^nt / (1+i) ^nt - 1)

Part 1: Explain what the following variables represent and how changing each one affects the monthly payment amount: P, i and t.

Part 2: Explain how changing each variable (P, i and t) affects the total cost of principal and interest over the life of the loan.

+1

Answers (1)

Know the Answer?

Christopher Hutchinson · Answer 1

Part 1:

P is the principal amount of the loan

i is the interest rate of the loan

t is the term of the loan

Part 2:

Increasing the principal and interest rate will result to a higher monthly payment. Increasing the term of the loan will produce the opposite result.