Question

Columbia Bank & Trust has just given you a $20,000 term loan to pay for a new concrete mixer. The loan requires five equal annual end-of-the-year payments. If the loan provides the bank with a 12 percent return, what will be your annual payments?

Answer 1

$5,548.19

Step-by-step explanation:

According to the scenario, computation of the given data are as follows,

Principal payment (p)= $20,000

Rate of interest (r) = 12%

Time period (t) = 5

So, we can calculate the annual payment by using following formula,

Annual payment = [p×r×
`(1+r)^(t)`] ÷ [
`(1+r)^(t)`-1]

By putting the value, we get

= [$20,000×0.12
`(1+0.12)^(5)`] ÷ [
`(1+0.12)^(5)`-1]

By solving the equation, we get

= $5,548.19

Hence, the annual payment will be $5,548.19.