Question

You are considering borrowing R10 000 for 3 years at an annual interest rate of 6%. The loan agreement calls for 3 equal payments, to be paid at the end of each of the next 3 years. (Payments include both principal and interest.) The annual payment that will fully pay off (amortize) the loan is closest to

A. R2 890
B. R2 674
C. R3 741
D. R4 020

Answer 1

To fully pay off the loan, the annual payment should be R3,741.18.

Step-by-step explanation:

To calculate the annual payment that will fully pay off the loan, we can use the formula for the present value of an annuity.

In this case, the present value is R10,000, the number of periods is 3, and the interest rate is 6%. Plugging these values into the formula, we can calculate the annual payment:

Annual payment = R10,000 / (1 - (1 + 0.06)^-3) = R3,741.18

Therefore, the closest answer option to the annual payment that will fully pay off the loan is R3,741 (Option C).