Question

John Doeber borrowed $300,000 to buy a house. His loan cost was 7% and he promised to repay the loan in 20 equal annual payments. How much are the annual payments?

Answer 1

Given :

Amount borrowed = $ 300,000

Interest on loan = 7%

Number of annual payments = 20

Let the annual payment be X

Formula

Annual installment  = (P * R * (1+r)^n) / ((1+r)^n -1)

where P = Principal amount borrowed  
r = rate of interest
n = Repayment period

X = (300,000 * 0.07 * (1+0.07)^20) / ((1+0.07)^20 -1)

X = (300,000 * 0.07 * (1.07)^20) / ((1.07)^20 -1)

X = (300,000 * 0.07 *3.8696844 / (3.8696844 -1)

X = 81263.3737122 / 2.8696844

X = $ 28,317.88

Annual payment = $ 28,317.88