Recently you borrowed money for a new car. The loan amount is $15,000 to be paid back in equal annual payments which begin today, and will continue to be payable at the beginning of each year for a total of five years. Interest on the loan is 8%. What is the amount of the loan payment?

Question

Quizplus · Accepted Answer

This is a problem of calculating the payment of an annuity due with annual payments. We can use the formula:

Payment = (Loan amount * Annual interest rate) / (1 - (1 + Annual interest rate)^-n)

Where n is the number of payments, which in this case is 5.

Substituting the given values, we get:

Payment = (15000 * 0.08) / (1 - (1 + 0.08)^-5) = $3,478.31 (rounded to the nearest cent)

Therefore, the best choice is C, $3,478.31.

Recently You Borrowed Money for a New Car