Question

Loan payments and interest Schuyler Company wishes to purchase an asset costing $110,000. The full amount needed to finance the asset can be borrowed at 13.8% interest. The terms of the loan require equal end-of-year payments for the next 6 years. Determine the total annual loan payment, and break it into the amount of interest and the amount of principal paid for each year. (Hint: Use the techniques presented in Chapter 5 to find the loan payment.) The amount of the equal, annual, end-of-year loan payment is $ . (Round to the nearest cent.)

Answer 1

Annual end of year loan payment

Here, we have Loan Amount (P) = $110,000

Annual interest rate (n) = 13.80% per year

Number of years (n) = 6 Years

Therefore, the Annual loan payment = [P x {r (1 + r)ⁿ} ] / [(1 + r)ⁿ – 1]

= [$110,000 x {0.1380 x (1 + 0.1380)⁶}] / [(1 + 0.1380)⁶– 1]

= [$110,000 x {0.1380 x 2.1719687}] / [2.1719687 – 1]

= [$110,000 x 0.2997317] / 1.1719687

= $32,970.49 / 1.1719687

= $28,132.56 per year

“Hence, the Annual end of year loan payment will be $28,132.56”