Adam borrows $4,500 at 12 percent annually compounded interest to be repaid in four equal annual installments. The actual end-of-year payment is ________.
A) $ 942
B) $1,125
C) $1,482
D) $2,641

Question

Quizplus · Accepted Answer

To solve this problem, we can use the formula for the present value of an annuity:

Present Value = (Payment/Interest rate) x (1 - 1/(1+Interest rate)^Number of payments)

Plugging in the given values, we get:

Present Value = (Payment/0.12) x (1 - 1/(1.12)^4) = 4500

Solving for the payment, we get:

Payment = 1481.95

However, since the payments must be equal, we round up to the nearest dollar:

Payment = $1,482

Therefore, the actual end-of-year payment is $1,482 (Choice C).

Adam Borrows $4,500 at 12 Percent Annually Compounded Interest to Be