You borrow $4 at an interest rate of r% (per month) and pay it off over f months

Question

You borrow $4 at an interest rate of r% (per month) and pay it off over f months by making monthly payments of P = g(A, r, t) dollars. Suppose you plan to borrow $ 8000 with a monthly interest rate of 1 % for 36 months. In financial terms, what do the following statements tell you? g_A (8000, 1, 36) = 0.051 Your monthly payment would increase by approximately if you borrowed $8010 instead of $8000. g_r (8000, 1, 36) = 44.61 Your monthly payment would increase by approximately if the interest rate was 2% instead of 1% per month.

Explanation / Answer

a) gA is given as 0.051 which means g will increase 0.051 for each 1 increment in A

we have change in A = (8010-8000) = 10

so change in monthly payment = gA*10 = 0.051*10= 0.51 -------ANSWER for a part

b) gr =44.61

which means the g will increase 44.61 for each increment in r

we have change in r = (2-1) = 1

so change in monthly payment = 1*44.61= 44.61 -----ANSWER b

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