If you borrow $40,000 today and agree to repay the loan in 24 annual payments, how...

If you borrow $40,000 today and agree to repay the loan in 24 annual payments, how much do you owe every year? Assume this is an amortized loan with 10% interest rate, compounded annually?

Expert Solution

Loan amount =	40000
Interest rate annual= 10% or	0.1
Time in years (n)=	24
Equal annual payments for loan formula = P* i *((1+i)^n)/((1+i)^n-1)
400000.10((1+0.10)^24)/(((1+0.10)^24)-1)
$4,451.99

Amount owed every year shall be $ 4451.99

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	Loan amortization table
Year	Beginning balance	Annual Payment	Interest @10%	Principal payment received	Ending balance

			(Beg. Bal.*8%)	(Payment - interest)	(Beg. Balance - Loan red.)
1	40000.00	4451.99	4000.00	451.99	39548.01
2	39548.01	4451.99	3954.80	497.19	39050.82
3	39050.82	4451.99	3905.08	546.91	38503.91
4	38503.91	4451.99	3850.39	601.60	37902.31
5	37902.31	4451.99	3790.23	661.76	37240.55
6	37240.55	4451.99	3724.05	727.94	36512.61
7	36512.61	4451.99	3651.26	800.73	35711.88
8	35711.88	4451.99	3571.19	880.80	34831.08
9	34831.08	4451.99	3483.11	968.88	33862.20
10	33862.20	4451.99	3386.22	1065.77	32796.43
11	32796.43	4451.99	3279.64	1172.35	31624.08
12	31624.08	4451.99	3162.41	1289.58	30334.50
13	30334.50	4451.99	3033.45	1418.54	28915.95
14	28915.95	4451.99	2891.60	1560.40	27355.56
15	27355.56	4451.99	2735.56	1716.44	25639.12
16	25639.12	4451.99	2563.91	1888.08	23751.04
17	23751.04	4451.99	2375.10	2076.89	21674.16
18	21674.16	4451.99	2167.42	2284.58	19389.58
19	19389.58	4451.99	1938.96	2513.03	16876.55
20	16876.55	4451.99	1687.65	2764.34	14112.21
21	14112.21	4451.99	1411.22	3040.77	11071.44
22	11071.44	4451.99	1107.14	3344.85	7726.60
23	7726.60	4451.99	772.66	3679.33	4047.26
24	4047.26	4451.99	404.73	4047.26	0.00

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