Your firm intends to finance the purchase of a new construction crane. The cost is $1,500,000. What is the size of the annual ordinary annuity payment if the loan is amortized over a ten-year period at a rate of 8.50%?
A) $228,611.56
B) $127,500
C) $3,391,475.16
D) There is not enough information to answer this question.

Question

Quizplus · Accepted Answer

The formula for calculating the size of the annual ordinary annuity payment is:
PMT = (P*r)/(1-(1+r)^(-n))
Where:
P = the present value (in this case, the cost of the crane = $1,500,000)
r = the interest rate per period (8.50%/year)
n = the number of periods (10 years)
PMT = the size of the annuity payment
Plugging in the values, we get:
PMT = (1,500,000 * 0.085)/(1-(1+0.085)^(-10)) = $228,611.56
Therefore, the size of the annual ordinary annuity payment is $228,611.56. So, the best choice is A.

Your Firm Intends to Finance the Purchase of a New