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?
1 answer:
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
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