Suppose that you want to purchase some land to build a homestead in the future.You can afford payments of $5,000 each year and want to pay the loan back over the next 20 years.Assuming no down payment is required,how much can you borrow if the bank will charge you an annual interest rate of 12%?
A)$100,985.45
B)$48,231.47
C)$37,347.22
D)$160,262.21

Question

Quizplus · Accepted Answer

Using a financial calculator, the present value of an annuity formula is used to solve for the maximum loan amount:

PV = Payment x ((1 - (1 / (1 + r)^n)) / r)

Where:
- Payment = $5,000
- r = 12% or 0.12
- n = 20 years

Plugging in the values, we get:

PV = $5,000 x ((1 - (1 / (1 + 0.12)^20)) / 0.12) = $37,347.22

Therefore, the maximum loan amount you can borrow is $37,347.22. Answer choice C is correct.

Suppose That You Want to Purchase Some Land to Build