Question

Suppose a loan of $38,000 is taken out with an annual interest rate of 8.125%, with interest compounded semiannually. If equal payments are also made semiannually, find the amount of each payment needed to amortize (pay off) the loan in 13 years.

Answer 1

Answer:

$2,393.78

Explanation:

In this question we use the PMT formula that is shown in the attachment below:

Data provided in the question

Present value = $38,000

Future value = $0

Rate of interest = 8.125% ÷ 2 = 4.0625%

NPER = 13 years × 2 = 26 years

The formula is shown below:

= PMT(Rate;NPER;-PV;FV;type)

The present value come in negative

So, after solving this, the amount of each payment is $2,393.78