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Prescott Bank offers you a five-year loan for $75,000 at an annual interest rate of 6.8 percent. What will your annual loan payment be? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

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Answer:

Y= $18,194.05

Explanation:

This is a form of annuity that involves payment of equal amounts monthly for 5 years. These amount are made up of part of the interest and part of the principal.

Using the annuity formula

P= Y{1-(1/[1+r]^n)/r}

Where P = Initial loan amount

Y = yearly payment

r= interest rate

n= number of years

75,000= Y{1-(1/[1+0.068]^5)/0.068}

75,000= Y{1-(0.719689)/0.068}= Y{0.280311/0.068}

Y= 75,000/4.122227

Y= $18,194.05

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