Answered: a 5-year $10,000 loan requiring annual…

a 5-year $10,000 loan requiring annual payments at a fixed rate of 9% is amortized into five-year annuity payments. How much is the annual payment? $2789 $1908 $3105 $3245 $2233 $2571 $4100 $2860

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 18P

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Concept explainers

Cost of Credit

The cost of credit is an extra amount that the borrower has to pay besides the loan amount. These credit charges may vary from loan to loan. The cost of credit includes interest charges, maintenance charges, and arrangement charges. Some of the costs are mandatorily collected by the lender based on the loan amount and tenure of the loan. The cost of credit is also called finance charges of the credit.

Question

a 5-year $10,000 loan requiring annual payments at a fixed rate of 9% is amortized into five-year annuity payments. How much is the annual payment? $2789 $1908 $3105 $3245 $2233 $2571 $4100 $2860

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Expert Solution

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Annuity payment on a loan of $10,000 for a period of 5 years at a fixed interest rate of 9% can be calculated using the present value annuity formula:

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