Question

g If you borrow $12,000 with an interest rate of 4 percent, to be repaid in five equal yearly payments at the end of the next five years, what would be the amount of each payment? Use Exhibit 1-D. (Round time value factor to 3 decimal places and final answer to 2 decimal places.) g

Answer 1

The instalment amount is 2695.53

Step-by-step explanation:

The present value of money or borrowed amount (PV)= $12000

Interest rate (i) = 4 percent.

Time period (n )= 5 years

Annuity = A

We have to find the instalment amount that the person repay. Below is the following calculation.

P V= A x ((1 – (1 / (1 + r) ^ -n)) / r)

A = PV / ((1 – (1 / (1 + r) ^ -n)) / r)

A = 12000 / (( 1 – (1 / (1+ 4%)^-5))/ 4%

A = 2,695.53