Question

10. 8 A loan of $20000 is to be repaid by annual payments of $4000 per ycar (at the end of cach ycar) for the first 5 ycars and payments of $4500 per ycar thercafter for as long as nccessary. Determine the total number of payments and the amount of the smaller final payment made onc ycar after the last rogular payment. Assume an annual cffective rate of 7.5%

actsci questions, please show work

Answer 1

Loan Amount = PV of 4000 for 5 years + PV of Terminal Value
20000 =4000*((1-(1+7.5%)^-5)/7.5%)+Annual Payments/(7.5%*(1+7.5%)^5)
20000-4000*((`1-(1+7.5%)^-5)/7.5% =Annual Payments/(7.5%*(1+7.5%)^5)
16183.54 =Annual Payments/(7.5%*(1+7.5%)^5)
Annual Small Payments =410.93