Mr. Wolf is borrowing $500,000 to expand his business. The loan will be for ten years at 12% interest and will be repaid in equal quarterly installments. What will the quarterly installments be?
A) $88,496
B) $21,631
C) $25,510
D) $60,650

Question

Quizplus · Accepted Answer

To calculate the quarterly installments for a loan, we use the formula for an annuity payment, which can be represented as P = [rPV] / [1 - (1 + r)^-n], where P is the payment, r is the interest rate per period, PV is the present value of the loan (or the amount borrowed), and n is the total number of payments. In this case, Mr. Wolf is borrowing $500,000 at an annual interest rate of 12%, with payments made quarterly over ten years. This means the quarterly interest rate is 12% / 4 = 3% or 0.03 as a decimal, and the total number of payments is 10 years * 4 quarters/year = 40 quarters.Plugging these values into the formula gives us the quarterly payment amount. Using a financial calculator or an annuity payment formula, we calculate the quarterly payment to be approximately $21,631.

Mr Wolf Is Borrowing $500,000 to Expand His Business