Question

Fully amortized loan (annual payments for principal and interest with the same amount each year). Chuck Ponzi has talked an elderly woman into loaning him $45,000 for a new business venture. She has, however, successfully passed a finance class and requires Chuck to sign a binding contract on repayment of the $45,000 with an annual interest rate of 7% over the next 20 years. Determine the cash flow to the woman under a fully amortized loan, in which Ponzi will make equal annual payments at the end of each year so that the final payment will completely retire the original $45,000 loan. What is the amount of payment that the woman will receive at the end of years 1 through 20? $ (Round to the nearest cent.)

Answer 1

Annual payment [Pxrx(1+r)^n] =((1+r)^n-1] Here, 1 Interest rate per annum 2 Number of years 3 Number of compoundings per per annum 1:3 Interest rate per period (r) 2x3 Number of periods (n) Loan amount (P) 7.0% 20 1 7.0% 20 $ 45,000 Annual payment $ 4,247.68 (45000x7%*(1+7%) 20)--((1+7%) 20-1)

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