How to Calculate Equal Annual Payment for a Loan

Question:

A business borrows 56000 dollars at an effective rate of interest of 7.3 percent. The loan is to be repaid with 13 equal annual payments, the first coming a year from now. How much is each annual payment?

Answer:

To calculate the annual payment for a loan, the annuity formula can be used. Given the loan amount of $56000, an interest rate of 7.3%, and 13 equal annual payments, the annual payment comes out to be approximately $6595.79.

When it comes to repaying a loan with equal annual payments, it's important to consider the loan amount, interest rate, and the number of payments. In this case, the business borrowed $56000 at an interest rate of 7.3% to be repaid in 13 equal annual payments.

To calculate the annual payment, the annuity formula P = r * PV / [1- (1 + r)^-n] can be applied. Here, P represents the payment, PV is the loan amount ($56000), r is the interest rate in decimal form (0.073), and n is the number of payments (13).

By plugging the values into the formula, the annual payment is computed to be approximately $6595.79. This means that each of the 13 annual payments required to repay the loan will amount to $6595.79.