Question

A truck was purchased for $40,000. What is the required payment per year to completely pay off the mortgage in 20 years, assuming an interest rate of 10%?

Do by hand, and show all work.

Answer 1

Given, Mortgage=$40,000. Interest rate=10%. Period=20 years

Let ‘A’ be the payment per year.

Then, Amount of mortgage= A*PVIFA(10%,20)

PVIFA(10%,20)= 8.513564

$40,000=A*8.513564

Yearly payments = 40,000/8.513564 = $4698.38.

Note:

The yearly payments can be calculated algebraically as A= [P*r*(1+r)^n]/[(1+r)^n-1]

Where P= Principal (Loan amount)=$40,000    r = Interest rate= 0.10   n= number of years=20

A= 40000*0.1*1.1^20/(1.1^20-1) = $4698.38.