D'Anthony borrowed $50,000 today that he must repay in 15 annual end-of-year installments of $5,000.What annual interest rate is D'Anthony paying on his loan?
A) 2.222%
B) 3.333%
C) 5.556%
D) 33.33%

Question

Quizplus · Accepted Answer

The total amount to be repaid over 15 years is $5,000 x 15 = $75,000. Since D'Anthony borrowed $50,000, the interest he will pay over the 15 years is $75,000 - $50,000 = $25,000.

To find the annual interest rate, we can use the present value formula for an annuity:

PV = PMT x [1 - (1/(1+r)^n)]/r

Where:

PV = present value (in this case, $50,000) 
PMT = payment per period (in this case, $5,000) 
r = annual interest rate 
n = number of periods (in this case, 15)

Solving for r algebraically, we get:

r = 5.556%

Therefore, the answer is C.

D'Anthony Borrowed $50,000 Today That He Must Repay in 15