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9 September, 19:40

If you buy a store worth $250,000 with 14 percent down. The balance is to be paid off with equal annual payments at the end of each year over 30 years at a 12 percent rate of interest. What is the amount of the annual payment? $ 27,312 $ 26,691 $ 26,070 $ 25,449 $ 24,829

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  1. 9 September, 20:20
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    The annual equal payment is $26,691

    Explanation:

    The balance to be paid off in 30 equal installment is given as $250000 - ($250000*14%) = $215000

    The applicable formula to use in calculating the equal annual payment is present value of an ordinary annuity given below:

    PV=A * (1 - (1+r) ^-N/r)

    A=PV / (1 - (1+r) ^-N/r)

    PV=$215000

    (1 - (1+r) ^-N/r) = 1 - (1+12%) ^-30/12%

    = (1-0.033377924) / 12%

    =0.966622076 / 12%

    =8.055183968

    since the annuity factor is 8.055183968

    A=215000/8.055183968

    A=$26,690.89

    In other words, the annual payment required is $26.691
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