You borrow $20,000 to buy a boat. The loan is to be paid off in monthly installments over one year at 18 percent interest annually. The first payment is due one month from today. What is the amount of each monthly payment?

Question

Quizplus · Accepted Answer

Using the loan formula, we get:
Payment = (PVA of $1 for n=12, i=1.5%) x Loan amount 
Payment = (10.90751) x $20,000 
Payment = $218,150 
Monthly Payment = $218,150 / 12 
Monthly Payment = $1,834. Therefore, the best choice is (C).

You Borrow $20,000 to Buy a Boat