Question

Suppose a business takes out a $7,000, five-year loan at 6 percent that will be paid annually with a single, fixed payment each period. How much will be the annual payment?

Answer 1

Answer: $1,662

Explanation:

The question is asking for the annual payment that will result in a present value of $7,000 given 6% and 5 years. This payment is constant so is an annuity.

7,000 = Payment * Present value Interest factor of an Annuity, 6%, 5 periods)

7,000 = Payment * 4.212

Payment = 7,000/4.212

= $1,661.92

= $1,662