Answer:
Required monthly payments = $387
Explanation:
Loan Amortization: A loan repayment method structured such that a series of equal periodic installments will be paid for certain number of periods to offset both the loan principal amount and the accrued interest.
The monthly installment is computed as follows:
Monthly installment= Loan amount/annuity factor
Loan amount; 25,000 - 5000 = 20,000
Annuity factor = (1 - (1+r)^(-n))/r
r -monthly rate of interest, n- number of months
r- 6%/12 = 0.5% = 0.005, n = 5 × 12 = 60 (there are 12 months in a year)
Annuity factor = ( 1- (1+0.005)^(-60))/0.005
= 51.72556
Monthly installment = Loan amount /annuity factor
= 20,000/51.7256
= 386.66
Required monthly payments = $387
