How many $1000 annual payments will it take to pay off a $10,000 loan if interest is 5.37% compounded annually?

Question

Quizplus · Accepted Answer

The correct answer is A.The formula for the present value of an annuity is:PV = PMT * [1 - (1 + r)^-n] / rwhere:PV is the present value of the annuityPMT is the annual paymentr is the annual interest raten is the number of yearsIn this case, we have:PV = $10,000PMT = $1000r = 5.37% = 0.0537n = ?Solving for n, we get:n = [1 - (1 + 0.0537)^-n] / 0.0537 * $10,000 / $1000n = 14.999Since we cannot make a fractional payment, we round up to the nearest whole number, which is 15. Therefore, it will take 15 $1000 annual payments to pay off the loan.

How Many $1000 Annual Payments Will It Take to Pay