Suppose you borrowed $12,000 at an annual rate of 6 percent interest to buy a car and wish to repay it in five equal payments at the end of each of the next five years.Which of the following is the closest to the amount of each of these payments?
A)$2,364
B)$2,849
C)$2,544
D)$2,436

Question

Quizplus · Accepted Answer

To calculate the equal payments, we can use the formula for present value of an annuity:

PV = PMT * (1 - 1/(1+r)^n)/r

where PV is the initial amount borrowed ($12,000), PMT is the equal payment, r is the annual interest rate (0.06), and n is the number of payments (5).

Plugging in these values, we get:

12000 = PMT * (1 - 1/(1+0.06)^5)/0.06

Solving for PMT, we get:

PMT = 2848.91

So the closest answer choice is B: $2,849.

Suppose You Borrowed $12,000 at an Annual Rate of 6