Exercise - Computing the payment amount
Barry Rich is a business major at State U. He will be graduating this year and is planning to start a consulting business. He will need to purchase computer equipment that costs $29,000. He can borrow the money from the local bank but will have to make annual payments of principal and interest.
To determine the appropriate discount factor(s) using tables, click here to view Tables I, II, III, or IV in the appendix. Alternatively, if you calculate the discount factor(s) using a formula, round to six (6) decimal places before using the factor in the problem.
Required
a. Compute the annual payment Barry will be required to make on a $29,000, four-year, 5 percent loan.
b. If Barry can afford to make annual payments of $5,700, how much can he borrow?