A bank is negotiating a loan. The loan can either be paid off as a lump sum of $80,000 at the end of four years, or as equal ann

Question

2 years ago

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A bank is negotiating a loan. The loan can either be paid off as a lump sum of $80,000 at the end of four years, or as equal ann

ual payments at the end of each of the next four years. If the interest rate on the loan is 6%, what annual payments should be made so that both forms of payment are equivalent

Business

1 answer:

REY [17] · Answer 1 · 2022-08-20T19:06:42+03:00

Answer:

$18,287.32

Explanation:

We use the PMT formula i.e shown in the attachment below:

Data provided in the question

Present value = $0

Future value = $80,000

Rate of interest = 6%

Time period = 4 years

The formula is shown below:

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

The future value come in negative

So, after solving this, the annual payments should be made is $18,287.32