Question

How much money would you have to pay each year in 8 equal payments, starting 2 years from today, to repay a $20,000 loan received from a relative today, if the interest rate is 8% per year?

Answer 1

The annual payment is $3,758.72

Step-by-step explanation:

Amount borrowed = $20,000

Annual Interest Rate = 8%

Number of payments = 8

Let annual payment be $R

$20,000 = $R/1.08^2 + $R/1.08^3 + $R/1.08^4 + $R/1.08^9

$20,000 = (1/1.08) ×[$R/1.08 + $R/1.08^2 + $R/1.08^3 + $R/1.08^8]

$20,000 = (1/1.08)×$R×(1 - (1/1.08)^8) / 0.08

$20,000 = $R×5.32096

$R = $ 3,758.72

Therefore, the annual payment is $3,758.72