If you borrow $2,500 and agree to repay the loan in five equal annual payments a

Question

If you borrow $2,500 and agree to repay the loan in five equal annual payments at an interest rate of 12%, what will your payment be? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

What will your payment be if you make the first payment on the loan immediately instead of at the end of the first year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

If you borrow $2,500 and agree to repay the loan in five equal annual payments at an interest rate of 12%, what will your payment be? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Explanation / Answer

Present value of annuity = P×[1-(1÷(1+r)^n)]÷r

r is interest rate per period

P is payment per period

n is number of payments

$2,500 = P×[1-(1÷(1+12%)^5)]÷12%

Yearly payment, P = $693.52

Present value of annuity due = P+P×[1-(1÷(1+r))^(n-1)]÷r

r is interest rate per period

P is payment per period

n is number of payments

Present value of annuity due = P×(1+[1-(1÷(1+r))^(n-1)]÷r)

$2,500 = P×(1+[1-(1÷(1+12%))^(5-1)]÷12%)

Yearly payment, P = $619.22

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