Cal Lury owes $25,000 now. A lender will carry the debt for four more years at...

Cal Lury owes $25,000 now. A lender will carry the debt for four more years at 10 percent interest. That is, in this particular case, the amount owed will go up by 10 percent per year for four years. The lender then will require that Cal pay off the loan over the next 12 years at 13 percent interest.

What will his annual payment be? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)

Annual payments = $______

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Expert Solution

Ans: Future value = Present value * ( 1+ rate) ⁿ

rate = 10 % , n = 5 years

FV = 25,000 * (1 + 10%)⁵

= 25,000 ( 1.1)⁵

= 25,000 * 1.61051

= $ 40,262.75

Annual payment = Future value / (1 - 1 / (1+r)ⁿ) / (r)

= $ 40,262.75 * (r) / (1 - (1 / (1+12%)¹³

= $ 40,262.75 * (12%) / ( 1 - (0.2292)

= $ 40,262.75 *(0.12) / 0.77082

= $ 6267.99

jeff jeffy answered 2 years ago

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