Question

Campus Flights takes out a bank loan in the amount of $200,000 on March 1. The terms of the loan include a repayment of principal in ten equal installments, paid annually from March 1. The annual interest rate on the loan is 8%, recognized on December 31. What is the amount of each installment?

a. $24,000
b. $20,000
c. $22,000
d. $18,000

Answer 1

The amount of each installment is approximately $22,000.

Step-by-step explanation:

To calculate the amount of each installment, we need to determine the present value of the loan and the number of installments. The present value of the loan is $200,000, and the interest rate is 8%. Since the loan is repaid in ten equal installments, the number of installments is ten.

To calculate the amount of each installment, we can use the formula for the present value of an ordinary annuity:

Present Value = Payment Amount × (1 - (1 + interest rate) ^ -number of periods) / interest rate

Plugging in the values, we get:

200,000 = Payment Amount × (1 - (1 + 0.08) ^ -10) / 0.08

Solving for the Payment Amount, we find that each installment is approximately $22,000. Therefore, the correct answer is c. $22,000.