Western Bank offers you a $21,000,9-year term loan at 8 percent annual interest.What is the amount of your annual loan payment?

Question

Quizplus · Accepted Answer

We can use the formula for calculating the annual loan payment, which is:

Annual Payment = (Loan Amount / Present Value Factor) x Payment Factor

The Present Value Factor and Payment Factor can be found in a loan amortization table or using financial calculators.

For a $21,000 loan at 8% annual interest for 9 years, the Present Value Factor is 7.0366 and the Payment Factor is 0.052232.

Plugging in the values, we get:

Annual Payment = (21,000 / 7.0366) x 0.052232
Annual Payment = 3,361.67

Therefore, the best choice is B, with an annual loan payment of $3,361.67.

Western Bank Offers You a $21,000,9-Year Term Loan at 8