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27 March, 11:26

Prescott Bank offers you a five-year loan for $75,000 at an annual interest rate of 6.8 percent. What will your annual loan payment be? (Do not round intermediate calculations and round your answer to 2 decimal places, e. g., 32.16.)

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  1. 27 March, 11:38
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    Y = $18,194.05

    Explanation:

    This is a form of annuity that involves payment of equal amounts monthly for 5 years. These amount are made up of part of the interest and part of the principal.

    Using the annuity formula

    P = Y{1 - (1/[1+r]^n) / r}

    Where P = Initial loan amount

    Y = yearly payment

    r = interest rate

    n = number of years

    75,000 = Y{1 - (1/[1+0.068]^5) / 0.068}

    75,000 = Y{1 - (0.719689) / 0.068} = Y{0.280311/0.068}

    Y = 75,000/4.122227

    Y = $18,194.05
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