Prescott Bank offers you a five-year loan for $52,000 at an annual interest rate of 8.25 percent. What will your annual loan payment be?

Problem 6-9 Calculating Annuity Values [LO2]
Prescott Bank offers you a five-year loan for $52,000 at an annual interest rate of 8.25 percent. What will your annual loan payment be?


Answer

Note: Intermediate answers are shown below as rounded, but the full answer was used to complete the calculation.

The time line is:

0	1	2	3	4	5
$52,000	C	C	C	C	C

Here we have the PVA, the length of the annuity, and the interest rate. We want to calculate the annuity payment. Using the PVA equation:

PVA = C({1 − [1/(1 + r)t]}/r)

$52,000 = C{[1 − (1/1.08255)]/.0825}

We can now solve this equation for the annuity payment. Doing so, we get:

C = $52,000/3.96654

C = $13,109.66

   

Calculator Solution:

  

Enter

5

8.25%

±$52,000

N

I/Y

PV

PMT

FV

Solve for

$13,109.66