[reo]

I’m having trouble answering another problem . . .

Can someone assist me please? I don’t just want the answer either, I need to know how to solve it, so that I can know this material. Any and all help would be appreciated. The problem is below, cheers(!) . . .

You borrow $20,000 to buy a car. The loan is to be paid off in quarterly installments over

five years at 10 percent annual interest rate. The first payment is due one quarter from

today. What is the amount of each quarterly payment?

a) $1,380

b) $1,283

c) $1,252

d) $1,150

Reo

[wombataholic]

The answer is B – 1,283. You'll be solving it using the formula for the present value of an ordinary annuity:

PV = C * ((1-(1+i)^-n)/i)

PV=the present value

C=the monthly payment

i=interest per period

n=number of payments/periods

So, plugging in your numbers:

20,000 = C* ((1-(1+.025)^-20)/.025)

Solving for C:

20,000 = C *((1-.61)/.025)

20,000 = C * (.39/.025)

20,000 = C * 15.59

1282.87 = C, Rounded up to $1,283

I may have rounded at different points than others, but you should get about the same number.

Licensed CPA
Passed each section on the first try with Ninja Notes/MCQ/Audio

[Author]

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