Nico makes annual end-of-year payments of $5,043.71 on a four-year loan with an interest rate of 13 percent. The original principal amount was ________.
A) $24,450
B) $15,000
C) $3,100
D) $20,175

Question

Quizplus · Accepted Answer

The correct answer is found by calculating the present value of an annuity, which is the original principal amount of the loan. The formula for the present value of an annuity is P = PMT [(1 - (1 + r)^-n) / r], where PMT is the annual payment, r is the annual interest rate (as a decimal), and n is the number of payments. Using the given annual payment of $5,043.71, an interest rate of 13% (or 0.13 as a decimal), and a total of 4 payments, the calculation yields a present value (original principal) close to $15,000.

Nico Makes Annual End-Of-Year Payments of $5,043