If you borrow $40,000 at an annual interest rate of 11% for seven years,what is the annual payment (prior to maturity)on a fully amortized loan?
A)$0.00
B)$3,000.00
C)$8,333.33
D)$8,488.61

Question

Quizplus · Accepted Answer

To calculate the annual payment, we can use the formula for a fully amortized loan:

P = (PV*r) / (1 - (1 + r)^(-n))

where:
PV = present value (the amount borrowed) = $40,000
r = periodic interest rate = 11% / 12 months = 0.00916667
n = total number of periods = 7 years * 12 months/year = 84

Plugging in these values, we get:

P = (40000*0.00916667) / (1 - (1+0.00916667)^(-84))
P = $8,488.61

Therefore, the annual payment (prior to maturity) on the loan is $8,488.61.
The correct answer is D.

If You Borrow $40,000 at an Annual Interest Rate of 11