Debt Ltd borrowed $100 000 from its local bank to finance the purchase of new equipment.Annual payments are required over five years at a fixed interest rate of 10% p.a.How much is each annual payment?
A)$27 398.18
B)$20 000.00
C)$26 379.75
D)$24 444.12

Question

Quizplus · Accepted Answer

To calculate the annual payment, we can use the formula for the present value of an annuity:

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

Where PV is the present value of the loan ($100,000), r is the annual interest rate expressed as a decimal (0.10), and n is the number of years (5).

Plugging in the values, we get:

Annual Payment = 100,000 x (0.10(1+0.10)^5) / ((1+0.10)^5 - 1)

Annual Payment = $26,379.75

Therefore, the correct answer is C: $26,379.75.

Debt Ltd Borrowed $100 000 from Its Local Bank to Finance