Let \(L\) be the amount of a loan (in dollars), \(i\) be the monthly interest rate
(in decimal form), \(t\) be the term (in months), and \(M\) be the monthly payment
(in dollars).
a. When making monthly payments, you are paying the loan amount plus the
interest the loan gathers each month. For a 1-month loan, \(t=1\), the equation
for repayment is \(L(1+i)-M=0\). For a 2-month loan, \(t=2\), the equation is
\([L(1+i)-M](1+i)-M=0\). Solve both of these repayment equations for \(L\).
b. Use the pattern in the equations you solved in part (a) to write a
repayment equation for a \(t\)-month loan. (Hint: \(L\) is equal to \(M\) times a
geometric series.) Then solve the equation for \(M\).
c. Use the rule for the sum of a finite geometric series to show that the
formula in part (b) is equivalent to
$$
M=L\left(\frac{i}{1-(1+i)^{-t}}\right) .
$$
Use this formula to check your answers in Exercises 57 and 58.