Zam Zam Inc. borrowed $142 000.00 at 4.4% compounded semi-annually. The loan is repaid by payments of $9700.00 due at the end of every six months. How many payments are needed and what will be the outstanding balance after 8 payments?

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Quizplus · Accepted Answer

To solve this, we use the formula for the present value of an annuity: $PV = PMT \times \left(\frac{1 - (1 + r)^{-n}}{r}\right)$, where PV is the present value (loan amount), PMT is the payment amount, r is the interest rate per period, and n is the number of periods. Here, r = 4.4%/2 = 2.2% per period (since interest is compounded semi-annually), and PMT = $9700. After 8 payments, we calculate the remaining balance using the formula for future value of an annuity to find the outstanding balance. The correct number of payments and the outstanding balance align with option A, considering the specifics of the loan and payments.