Respuesta :
The value of i, the interest rate per period(monthly here) that should be used in the considered formula is given by: Option B: 0.71
How to find the monthly payment?
If we're given that:
- [tex]P_v[/tex] = present value
- [tex]P[/tex] = monthly payment to be paid
- i = interest rate per month
- n = number of periods.
Then, we get:
[tex]P = P_v\left(\dfrac{i}{1-(1+i)^{-n}}\right)[/tex]
For this case, we're provided that:
i = interest rate per period
And we have:
Interest rate compounding monthly = 8.5%
The interest rates are usually given for annual basis. Since i represents the rate per period, which is monthly here, thus, we will convert the rate 8.5% from annually to monthly.
Since 1 year = 12 months,
so 8.5% per year compounding monthly = (8.5/12)% per month compounding monthly
Thus, i = interest per period = interest per month = 8.5/12≈ 0.71 (in percentage)
Thus, the value of i, the interest rate per period(monthly here) that should be used in the considered formula is given by: Option B: 0.71
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