Question

If you buy a store worth $250,000 with 14 percent down. The balance is to be paid off with equal annual payments at the end of each year over 30 years at a 12 percent rate of interest. What is the amount of the annual payment? $ 27,312 $ 26,691 $ 26,070 $ 25,449 $ 24,829

Answer 1

The annual equal payment is $26,691

Step-by-step explanation:

The balance to be paid off in 30 equal installment is given as $250000-($250000*14%)=$215000

The applicable formula to use in calculating the equal annual payment is present value of an ordinary annuity given below:

PV=A*(1-(1+r)^-N/r)

A=PV/(1-(1+r)^-N/r)

PV=$215000

(1-(1+r)^-N/r)=1-(1+12%)^-30/12%

=(1-0.033377924 )/12%

=0.966622076 /12%

=8.055183968

since the annuity factor is 8.055183968

A=215000/8.055183968

A=$26,690.89

In other words, the annual payment required is $26.691