Prescott Bank offers you a $23,000, 6-year term loan at 8 percent annual interest. What will your annual loan payment be?

Annual payment= $3,901.78

Explanation:

Loan Amortization: A loan repayment method structured such that a series of equal periodic installments will be paid for certain number of periods to offset both the loan principal amount and the accrued interest.

The monthly instalment is computed as follows:  

Monthly installment= Loan amount/annuity factor

Loan amount;  = 23,000

Annuity factor = (1 - (1+r)^(-n))/r

r -monthly rate of interest, n- number of months

r- 8%/12 = % = 0.6667 , n = 8 × 12 = 96  

Annuity factor = ( 1- (1+0.6667)^(-96))/0.6667

= 70.7370    

Monthly installment = Loan amount /annuity factor

= 23,000/70.7370  = 325.15

Annual payment = 12×  325.15 = $3901.78

Annual payment= $3,901.78

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