Doris borrowed $5000 from a finance company at an interest of 8% quarterly. The loan is to be repaid in 3 equal payments, annually. What is the amount of the equal payment?
A) $1948.69
B) $1666.67
C) $1419.51
D) $1787.42
E) $1856.77

Question

Quizplus · Accepted Answer

The correct answer can be found using the formula for the annuity payment on a loan, which is P = [rPV] / [1 - (1 + r)^-n], where P is the payment, r is the interest rate per period, PV is the present value of the loan (initial loan amount), and n is the number of payments. Here, r = 8% quarterly = 0.08, PV = $5000, and n = 3 (since the payments are annual, and the interest is compounded quarterly, we adjust the interest rate and the number of periods to match the annual payments). The correct calculation gives us the closest value to $1948.69.

Doris Borrowed $5000 from a Finance Company at an Interest