Question
Asked May 31, 2019
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a. If you borrow $1,100 and agree to repay the loan in six equal annual payments at an interest rate of 11%, what will your payment be?

b. What will your payment be if you make the first payment on the loan immediately instead of at the end of the first year?

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Expert Answer

Step 1

Part (a)

Let the annual payment be P. 

Interest rate, i = 11%; n = period = number of payment = 6

Hence, the borrowed amount today = Present value of all the future annuities

Hence, $ 1,100 = Sum of PV of 6 year end annuities at 11%

Step 2

Please see the white board for the mathematical form of the equation and the final answer. 

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Step 3

Hence, the final answer is: The equal an...

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