Assume a lender offers you a $25,000, 10%, three-year loan that is to be fully amortized with three annual payments. The first payment will be due one year from the loan date. How much will you have to pay each year?

Question

Quizplus · Accepted Answer

The annual payment can be calculated using the formula for an amortizing loan: Payment = [P * r * (1 + r)^n] / [(1 + r)^n – 1], where P is the principal ($25,000), r is the annual interest rate (10% or 0.10), and n is the number of payments (3). This calculation results in an annual payment of approximately $10,053.

Assume a Lender Offers You a $25,000, 10%, Three-Year Loan