Question

Cal Lury owes $21,000 now. A lender will carry the debt for five more years at 6 percent interest. That is, in this particular case, the amount owed will go up by 6 percent per year for five years. The lender then will require that Cal pay off the loan over the next 13 years at 9 percent interest. What will his annual payment be

Answer 1

Answer:

$3,753.59

Explanation:

Value of debt at end of 5 years = $21,000 * (1 + 6%)^5

Value of debt at end of 5 years = $21,000 * 1.3382255776

Value of debt at end of 5 years = $28102.7371296

Value of debt at end of 5 years = $28,102.74

Let x be the annual payments:

x*[1 - (1 + 9%)^-13] / 9% = $28,102.74

x * [1-0.32617864688] / 0.09 = $28,102.74

x * 7.486904 = $28,102.74

x = $28,102.74 / 7.486904

x = 3753.58626

x = $3,753.59