Mr. G obtains a $70,000 loan today. He will repay the bank with equal payments to be made at the end of each 6-month period, or twice each year, for 6 years. If the interest rate the bank charges is an 8% annual percentage rate, what amount of money will each payment be?

Question

Business

Bailey Glover

7 August, 22:49

Mr. G obtains a $70,000 loan today. He will repay the bank with equal payments to be made at the end of each 6-month period, or twice each year, for 6 years. If the interest rate the bank charges is an 8% annual percentage rate, what amount of money will each payment be?

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Answers (1)

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Lucian Rowe · Answer 1

The amount of each payment after every 6 months will be $7,458

Explanation:

We need to find the amount of payment made every 6 months. For that we need to know the present value of the loan which is 70,000, the interest rate which is 8% but we will divide it by 2 because there are semiannual payments so interest rate will be 4%, after that we need to know the number of compounding periods, because the payments are semi annual and there are 6 years we will multiply 6 by 2 and get 12 which is our compounding periods. Because there are equal payments and no payment to be made at end the future value of the loan is 0. Now we will input the following data in a financial calculator.

PV = 70,000

I = 4

N = 12

Fv=0

Compute PMT=7,458