Question

If $50,000 is borrowed at an annual interest rate of 8.9% for nine years, determine the annual payments made at the start of each year.

Multiple Choice

• $7,527

• $7,627

• $7,827

• $7,927

• $7,727

Answer 1

You need to use a Financial calculator to solve this problem. You can download it.

2ND + PMT, then 2ND + ENTER (This will set the calculator to the beginning mode as payment is made at the beginning of each year)

N = 9 (The Borrowing is for 9 years)

PV = -50,000 (This is borrowed now)

FV = 0 (At the end of 9 years, the borrowing should be zero)

I/Y = 8.9%(The annual interest rate is 8.9%)

CPT + PMT = 7,627.24

So the correct option is "B"

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