Question

A farmer is given a loan amount of $1,553.62 with a contractual rate of 4.73%. The loan will be fully amortized with annual payments over the next 9 years. Calculate the annual payment.

A. $170.10
B. $247.75
C. $305.20
D. $195.54

Answer 1

The annual payment on a fully amortized loan with given information is $247.75 (B).

Step-by-step explanation:

To calculate the annual payment on a fully amortized loan, we can use the formula:

Annual payment = (Loan amount * Annual interest rate) / (1 - (1 + Annual interest rate)^(-Number of years))

Using the given information, the annual payment would be:

Annual payment = (1553.62 * 0.0473) / (1 - (1 + 0.0473)^(-9)) = 247.75

Therefore, the correct answer is $247.75 (B).