(Related to Checkpoint 6.1) (Annuity payments) Mr. Bill S. Preston, Esq., purcha
ID: 2809443 • Letter: #
Question
(Related to Checkpoint 6.1) (Annuity payments) Mr. Bill S. Preston, Esq., purchased a new house for
$110,000.
He paid
$15,000
upfront and agreed to pay the rest over the next
15
years in
15
equal annual payments that include principal payments plus
11
percent compound interest on the unpaid balance. What will these equal payments be?
b.If Bill agrees to pay the loan over the next
15
years in
15
equal end-of-year payments plus
11
percent compound interest on the unpaid balance, what will these equal payments be?
Explanation / Answer
Total borrowings=(110000-15000)=$95000
Present value of annuity=Annuity[1-(1+interest rate)^-time period]/rate
95000=Annuity[1-(1.11)^-15]/0.11
95000=Annuity*7.190869576
Annuity=95000/7.190869576
which is equal to
=$13211.20(Approx)=equal payments.
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