Question

You borrowed $30,000 to finance the education expenses for your senior year of college at the beginning of your senior year. The loan will be paid off over five years and the first installment will be due a year later. The loan carriers an interest rate of 7% per year and is to be repaid in equal annual installments over the next five years. Suppose you want to negotiate with the bank to defer the first loan installment until the end of year 2. (But you still desire to make five equal installments at 7% interest.) If the bank wishes to earn the same profit, what should be the new annual installment

Answer 1

$7,828.869

Step-by-step explanation:

For computing new annual installment first we have to determine the equivalent worth of borrowed amount i.e $30,000 which is shown below:

= Borrowed amount × (1 + interest rate)

= $30,000 × (1 + 0.07)

= $30,000 × 1.07

= $32,100

Now the new annual installment is

= Equivalent worth of borrowed amount × (A/P,7%,5%)

= $32,100 × 0.24389

= $7,828.869

Refer to the A/P table for determining the factor