Dawson Electricals has borrowed $27,850 from its bank at an annual rate of 8.5 percent. It plans to repay the loan in eight equal installments, beginning at the end of next in a year. What is its annual loan payment? (Round to the nearest dollar.)

Question

Quizplus · Accepted Answer

We can solve this problem using the formula for the present value of an annuity:

PV = Pmt x [1 - (1 + r)^-n] / r

where PV is the present value of the loan, Pmt is the equal payment, r is the annual interest rate, and n is the number of payments.

In this case, we have:

PV = $27,850
r = 8.5% = 0.085
n = 8

Solving for Pmt, we get:

Pmt = PV x r / [1 - (1 + r)^-n]

Pmt = $27,850 x 0.085 / [1 - (1 + 0.085)^-8]

Pmt = $4,938.9

Rounding this to the nearest dollar, we get:

Pmt = $4,939

Therefore, the annual loan payment for Dawson Electricals is $4,939, which corresponds to choice C.

Dawson Electricals Has Borrowed $27,850 from Its Bank at an Annual