Stillwater hospital is borrowing $1,000,000 for its medical office building. The annual interest rate is 5 percent. What will be the equal annual payments on the loan if the length of the loan is four years and payments occurs at the end of each year?
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To calculate the equal annual payments on a loan, you can use the formula for the present value of an annuity.
1. Determine the present value factor for an annuity of $1,000,000 over four years at a 5 percent interest rate. The present value factor can be found in a present value of annuity table or calculated using a financial calculator or spreadsheet software. For this example, let's assume the present value factor is 3.545.
2. Divide the loan amount by the present value factor to find the equal annual payments. In this case, $1,000,000 divided by 3.545 equals approximately $282,024.
So, the equal annual payments on the loan for Stillwater hospital would be approximately $282,024.