An entrepreneur borrows $300,000 today. The interest rate is 8%. Finally, the loan needs to be paid off in equal annual installments over the next 10 years, starting one year from today. How much will the entrepreneur have to pay each year?

Each year the entrepreneur will pay $ 540,000/10 = $ 54,000.

Explanation:

Principal = P = $ 300,000

Rate = R = 8 %

Time = T = 10 years

Simple Interest = SI = P * R * T/100

SI = $ 300,000 * 8 * 10/100

SI = $ 240,000

Over the next ten years the total interest will be $ 240,000

Each year it will be $ 240,000 / 10 = $ 24,000

Total Amount to be paid in the next ten years would be = A = Simple Interest + Principal = SI + P = $ 240,000 + $ 300,000 = $ 540,000

Each year the entrepreneur will pay $ 540,000/10 = $ 54,000

The Entrepreneur will have to pay $3,639.83 each year.

Explanation:

The formula for amount of payment per year is given as

= a/{[ (1+r) ⁿ]-1}/[r (1+r) ⁿ]

Where a = amount of the loan

r = interest rate

n = number of monthly payments

a: $300,000, the amount of the loan

Annual rate is 8%

Therefore interest rate which is r is calculated as

r: (8% annual rate is expressed as 0.08

We then divide 0.08 by 12 monthly payments per year)

0.08 : 12

0.0067

n: (12 monthly payments per year times 10 years)

This is calculated as 12 * 10 = 120

The amount to be paid per year is calculated as:

a/{[ (1+r) ⁿ]-1}/[r (1+r) ⁿ]

300,000/{[ (1+0.0067) ¹²⁰]-1}/[0.0067 (1+0.0067) ¹²⁰]

= $3,639.83

Hence, the Entrepreneur will have to pay $3,639.83 each year.