Dan and Joan want to buy an airplane. They find one that will cost $200,000. They must pay 10% down, and can get the balance financed with a 10 year loan at 7% interest and annual payments. What is their annual payment?
Answer
$26,826
$25,626
$24,457
$19,260
26826
To find the annual payment for the loan, we first need to calculate the loan amount after the down payment is made.
The cost of the airplane is $200,000, and they need to pay a 10% down payment. So, the down payment amount is 10% of $200,000, which is $20,000.
The loan amount will be the remaining balance after the down payment, which is $200,000 - $20,000 = $180,000.
Now, we can use the loan amount, loan term, and interest rate to calculate the annual payment using the formula for calculating the payment on an amortizing loan.
The annual payment formula for an amortizing loan is:
Annual Payment = (Loan Amount * Interest Rate) / (1 - (1 + Interest Rate)^(-Loan Term))
In this case, the loan amount is $180,000, the interest rate is 7% (0.07), and the loan term is 10 years.
Plugging in the values, we can calculate the annual payment:
Annual Payment = (180,000 * 0.07) / (1 - (1 + 0.07)^(-10))
Calculating this expression, we find that the annual payment is approximately $26,826.
So, the correct answer is: $26,826.