If you borrow $8,000 with an interest rate of 5 percent to be repaid in five equal payments at the end of the next five years, what would be the amount of each payment?

Question

asked Sep 7, 2021 147k views

1 Answer

Minkiele · Answer 1 · 2021-09-13T17:04:11+0000

Answer:

$1,848

Step-by-step explanation:

The formula to compute the equal payments i.e we called PMT is shown below:

PMT = Present value ÷ Present value interest annuity factor for 5 years at 5%

= $8,000 ÷ 4.3295

= $1,848

For computing, the interest annuity factor refers to the PVIFA table

Simply we divided the borrowed amount by the PVIFA so that the approximate value can come