Question

Art's Market barrows $25,000 for three years at 8 percent. Payments are quarterly. Which of these inputs correctly computes the payment amount?
A. N = 12; 1 = 8/4; PV = 25,000; FV = 0; CPT PMT
B. N = 12; 1 = 8/4; PV = 0; FV = 25,000; CPT PMT
C. N = 12; 1 = 8/3; PV = 25,000; FV = 0; CPT PMT
D. N = 4; 1 = 8/4; PV = 25,000; FV = 0; CPT PMT

Answer 1

Answer: A. N = 12; 1 = 8/4; PV = 25,000; FV = 0; CPT PMT

Explanation:

A is the correct option because,

N = 12

The period is 3 years but the payments are quaterly so the actual period is;

= 3 years * 4

= 12 quarters/ periods.

I = 8/4

The interest rate is 8% but this is stated as a Yearly value which needs to be adjusted to a quarterly value by dividing it by 4.

PV = 25,000

The Present Value of the loan is $25,000 because this is the amount that Art's Market was given in the present.

When all of this is inputted into the calculator, the answer will be; PMT =  $2,363.99.