Asked May 31, 2019

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?


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. 

Step 3

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

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