Question

a. If you borrow $1,700 and agree to repay the loan in six equal annual payments at an interest rate of 11%, what will your payment be? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

b. What will your payment be if you make the first payment on the loan immediately instead of at the end of the first year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Answer 1

This question requires application of PV of annuity - ordinary annuity in part a, and annuity due in part b

PV = $1,700, i = 11%, n = 6

a)

1700 = R * 4.2305

R = $401.84

a) For ordinary annuity (payment made at end of period)

1700 = R * 4.2305

R = $401.84

b) For annuity due (payment made at start of period)

1700 = R * 4.2305 * 1.11

R = $362.02