Ryan must pay off a loan of $3,500 in 5 years. Use the appropriate formula to find the amortization payment he would need to make each six months, at 12% interest compounded semiannually.

Question

Quizplus · Accepted Answer

The correct answer is A because the amortization payment is calculated using the formula:P = (PV * r) / (1 - (1 + r)^(-n))where:P = amortization paymentPV = present value of the loanr = interest rate per periodn = number of periodsIn this case, the present value of the loan is $3,500, the interest rate per period is 6% (12% / 2), and the number of periods is 10 (5 years * 2 periods per year). Plugging these values into the formula, we get:P = (3500 * 0.06) / (1 - (1 + 0.06)^(-10))P = $475.54

Ryan Must Pay Off a Loan of $3,500 in 5