Question

kevin borrows $8,000 from second national bank at 10% interest. kevin will repay the loan in six equal payments beginning at the end of year 1. what is the annual amount that kevin will pay the bank each year? round your answer to the nearest dollar. multiple choice question. $1,266 $2,133 $1,837 $1,333

Answer 1

To calculate the annual amount that Kevin will pay the bank each year, we need to use the formula for the Present Value of an Annuity:

PMT = PV / [ (1 - (1 + r)^(-n)) / r ]

Where:
PV = Present Value or the amount borrowed (in this case $8,000)
r = Interest rate per period (in this case 10%/year or 0.1/year)
n = Number of payment periods (in this case 6)

Substituting the values we get:

PMT = 8000 / [ (1 - (1+0.1/1)^(-6)) / (0.1/1) ]

PMT = $1,837 (rounded to the nearest dollar)

Therefore, the correct answer is C) $1,837.