Which of these expressions can be used to calculate the monthly payment for a 20-year loan for [tex]$170,000 at 12.6% interest, compounded monthly?

A. \(\frac{\$[/tex]170{,}000 \cdot 0.0105(1+0.0105)^{240}}{(1+0.0105)^{240}+1}\)
B. [tex]\(\frac{\$170{,}000 \cdot 0.0105(1-0.0105)^{240}}{(1-0.0105)^{240}-1}\)[/tex]
C. [tex]\(\frac{\$170{,}000 \cdot 0.0105(1-0.0105)^{240}}{(1-0.0105)^{240}+1}\)[/tex]
D. [tex]\(\frac{\$170{,}000 \cdot 0.0105(1+0.0105)^{240}}{(1+0.0105)^{240}-1}\)[/tex]



Answer :

To find the correct expression for calculating the monthly payment for a 20-year loan of [tex]$170,000 at an annual interest rate of 12.6%, compounded monthly, we can break it down step-by-step. 1. Convert the Annual Interest Rate to a Monthly Rate: The annual interest rate is 12.6%, which we need to convert to a monthly rate by dividing by 12: \[ r = \frac{12.6\%}{12} = 0.126 / 12 = 0.0105 \] 2. Calculate the Number of Monthly Payments: Since the loan term is 20 years, and there are 12 months in a year, the total number of monthly payments (n) will be: \[ n = 20 \times 12 = 240 \] 3. Use the Monthly Payment Formula for Fixed-Rate Mortgages: The general formula for the monthly payment (M) on a fixed-rate mortgage is: \[ M = \frac{P \cdot r \cdot (1 + r)^n}{(1 + r)^n - 1} \] where \( P \) is the principal amount (loan amount), \( r \) is the monthly interest rate, and \( n \) is the number of payments. Plugging the given values into the formula: \[ M = \frac{\$[/tex] 170000 \cdot 0.0105 \cdot (1 + 0.0105)^{240}}{(1 + 0.0105)^{240} - 1}
\]

Now, let's compare this with the given options:

- Option A:
[tex]\[ \frac{\$ 170 \rho 00 \cdot 0.0105(1+0.0105)^{240}}{(1+0.0105)^{240}+1} \][/tex]
The numerator here seems correct, but the denominator has an incorrect [tex]\( +1 \)[/tex] instead of [tex]\( -1 \)[/tex].

- Option B:
[tex]\[ \frac{\$ 170 p 00 \cdot 0.0105(1-0.0105)^{240}}{(1-0.0105)^{240}-1} \][/tex]
This option incorrectly uses [tex]\( 1 - 0.0105 \)[/tex] instead of [tex]\( 1 + 0.0105 \)[/tex].

- Option C:
[tex]\[ \frac{\$ 170000 \cdot 0.0105(1-0.0105)^{240}}{(1-0.0105)^{240}+1} \][/tex]
This option also incorrectly uses [tex]\( 1 - 0.0105 \)[/tex] instead of [tex]\( 1 + 0.0105 \)[/tex], and the denominator is incorrect.

- Option D:
[tex]\[ \frac{\$ 170000 \cdot 0.0105(1+0.0105)^{240}}{(1+0.0105)^{240}-1} \][/tex]
This option uses the correct formula.

Therefore, the correct expression to calculate the monthly payment is:
[tex]\[ \boxed{\frac{\$ 170000 \cdot 0.0105(1+0.0105)^{240}}{(1+0.0105)^{240}-1}} \][/tex]