The solution to this problem requires time value of money calculations.Reference to Tables 9-1 through 9-4 in the text is necessary to complete the calculations. Cory and Ginger want to buy an airplane.They find one that will cost $200,000.They must pay 10% down, and can get the balance financed with a 10 year loan at 7% interest and annual payments.What is their annual payment?
A) $26,826
B) $25,626
C) $24,457
D) $19,260

Question

Quizplus · Accepted Answer

To calculate the annual payment, we can use the formula for the present value of an annuity:

PV = PMT x [(1 - (1 + r)^-n) / r]

where PV is the present value of the loan, PMT is the periodic payment, r is the interest rate per period, and n is the total number of periods.

First, we need to calculate the present value of the loan, which is the loan amount minus the down payment:

PV = $200,000 x (1 - 0.1) = $180,000

Next, we can use Table 9-2 to find the factor for 10 years and 7% interest, which is 7.0241.

Plugging in the numbers, we get:

$180,000 = PMT x [(1 - (1 + 0.07)^-10) / 0.07] x 1/1

Solving for PMT, we get:

PMT = $25,626

Therefore, the annual payment Cory and Ginger must make is $25,626. Answer B is the correct choice.

The Solution to This Problem Requires Time Value of Money