What semi-annual payment for 5 years will pay off a loan of $5,000 with interest at j₄ = 13%,if the first payment is made 6 months from now?

Question

Quizplus · Accepted Answer

Using the formula for present value of an annuity, we can solve for the semi-annual payment:

PV = PMT * [(1 - (1 + r)^-n) / r]
5000 = PMT * [(1 - (1 + 0.13/2)^-10) / (0.13/2)]

Solving for PMT, we get:

PMT = 698.97

Therefore, the semi-annual payment needed to pay off the loan in 5 years with interest at 13%, with the first payment made 6 months from now, is $698.97.

Option B is the correct answer, as it matches this value.

What Semi-Annual Payment for 5 Years Will Pay Off a Loan