A borrower had a loan of S20 00000 at 4 compounded annually

A borrower had a loan of S20 000.00 at 4% compounded annually, with 9 annual pay ments. Suppose the bo ower paid off the loan after 5 years. Cala ate the amount needed to pay off the loan. The amount needed to pay off this loan after 5 years is $ Round to the nearest cent as needed.)

Solution

First we need to calculate annual payment using the following formula

Annual payment= Principal paid*rate *(1+r)^period/((1+r)^period-1)

=20000*4%*(1+4%)^9/((1+4%)^9-1)

=$ 2,689.86

Now using the same formula we need to calculate how much principal is paid in 5 years.

2689.86=principal paid*4%*(1+4%)^5/((1+4%)^5-1)

Principal paid=$ 11,974.78

Amount to be paid= 20000-11974.78=$8,025.22