If you buy a factory for $250,000 and the terms are 20 percent down, the balance to be paid off over 30 years at a 1 rate of interest on the unpaid balance, what are the 30 equal annual payments?
A)$20,593
B)$31,036
C)$24,829
D)$50,212
E)$6,667

Question

Quizplus · Accepted Answer

The down payment will be 20% of $250,000 which is $50,000. So the remaining balance to be paid off is $200,000.
Using the formula for the present value of an annuity, we have:
PV = (PMT/i) x (1 - 1/(1+i)^n)
PV = present value of the annuity (in this case, $200,000)
PMT = equal annual payment
i = interest rate per period (which is 1% in this case)
n = number of periods (which is 30 years)

Substituting these values, we get:
$200,000 = (PMT/0.01) x (1 - 1/(1.01)^30)
Solving for PMT, we get:
PMT = $24,829.27

Therefore, the 30 equal annual payments will be $24,829.27. The best choice is (C).

If You Buy a Factory for $250,000 and the Terms