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 12 percent 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 initial down payment is 20% of $250,000, which is $50,000. This leaves a balance of $200,000 to be financed. The annual payment can be calculated using the formula for an annuity: $PMT = P \times \frac{r(1 + r)^n}{(1 + r)^n - 1}$, where $P$ is the principal ($200,000), $r$ is the annual interest rate divided by the number of periods per year (0.12), and $n$ is the total number of payments (30). Plugging in the values, we get $PMT = 200,000 \times \frac{0.12(1 + 0.12)^{30}}{(1 + 0.12)^{30} - 1}$, which calculates to approximately $24,829 annually.

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