Computing annuity payment: Jackson 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 in a year. What is its annual loan payment? (Round to the nearest dollar.)

Question

Quizplus · Accepted Answer

We can use the formula for computing annuity payment, which is:

Payment = Loan amount / ((1 - (1 + interest rate)^(-number of payments)) / interest rate)

Substituting the given values, we get:

Payment = 27,850 / ((1 - (1 + 0.085)^(-8)) / 0.085)
Payment = 27,850 / 5.846
Payment ≈ $4,938.93

Rounding this to the nearest dollar gives us $4,939, which is option C.

Computing Annuity Payment: Jackson Electricals Has Borrowed $27,850 from Its