Question

Meghan received a loan of $13,000 at 6.50% compounded quarterly. She had to make payments at the end of every quarter for a period of 1 year to settle the loan. a. Calculate the size of payments.

Answer 1

To calculate the size of payments for a loan, use the formula for the future value of an annuity. Plug in the given values to solve for the size of each payment.

Step-by-step explanation:

To calculate the size of payments for Meghan's loan, we can use the formula for the future value of an annuity:

FV = P imes ((1 + r)^n - 1) / r

Where:

• FV is the future value of the loan, which is $13,000
• P is the size of each payment
• r is the interest rate per period, which is 6.50% compounded quarterly, or 0.065 / 4 = 0.01625
• n is the total number of periods, which is 1 year * 4 quarters = 4 periods

Plugging in these values, we can solve for P:

13,000 = P imes ((1 + 0.01625)^4 - 1) / 0.01625

Simplifying the equation, we find that P is approximately $3,238.18.