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.
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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 ten 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

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.  
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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 ten 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

Quizplus · Accepted Answer

First, Cory and Ginger must pay 10% down, which is $200,000 x 0.10 = $20,000.

The remaining balance that needs financing is $200,000 - $20,000 = $180,000.

Using Table 9-2, the factor for a ten-year loan at 7% interest is 0.11940.

The annual payment can be calculated as:

Annual Payment = Remaining Balance / Factor
Annual Payment = $180,000 / 0.11940
Annual Payment = $25,626.85

Therefore, their annual payment is $25,626. Rounded to the nearest dollar, the answer is B) $25,626.

The Solution to This Problem Requires Time Value of Money