## Annual Percentage Rate:

Banks often quote the interest rate on a loan in terms of the annual percentage rate (APR). For consumer, the relevant rate is the effective rate, which is calculated by incorporating the compounding frequency of the interest rate.

The monthly payment is \$1,740.41.

We can use the following formula to compute the monthly payment (beginning-of-month) for a loan with principal {eq}P {/eq}, monthly interest rate {eq}r{/eq} and number of monthly payments {eq}T{/eq}:

• {eq}\displaystyle \frac{Pr}{(1 + r) - (1 + r)^{1-T}} {/eq}

In this question, the amount borrowed is 87,000, the effective monthly rate is 7.7%/12, and there are 60 monthly payments. Applying the formula, the monthly payment is:

• {eq}\displaystyle \frac{87,000*7.7\%/12}{(1 + 7.7\%/12) - (1 + 7.7\%/12)^{1-60}} = 1,740.41 {/eq}