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Big Brothers, Inc. borrows $333,793 from the bank at 17.87 percent per year, compounded annually, to...

Big Brothers, Inc. borrows $333,793 from the bank at 17.87 percent per year, compounded annually, to purchase new machinery. This loan is to be repaid in equal installments at the end of each year over the next 5 years. How much will each annual payment be? Round the answer to the two decimal places.

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Answer #1

This is a classic EMI ( Equated monthly installment) problem. This can be solved as below:

Thus annual payment is $ 106,425.46.

The calculation above takes into consideration the loan amount and the effective rate. We are basically using the following formula in excel version:

The excel formula is a play on the above formula, where we need to find out A and all other variables are given.

eg: PV = Loan amount

and rate is the loan rate .

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