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A bank is negotiating a loan. The loan can either be paid off as a lump sum of $80,000 at the end of four years, or as equal annual payments at the end of each of the next four years. If the interest rate on the loan is 6%, what annual payments should be made so that both forms of payment are equivalent

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Answer:

$18,287.32

Explanation:

We use the PMT formula i.e shown in the attachment below:

Data provided in the question

Present value = $0

Future value = $80,000

Rate of interest = 6%

Time period = 4 years

The formula is shown below:

= NPER(Rate;PMT;PV;-FV;type)

The future value come in negative

So, after solving this, the annual payments should be made is $18,287.32

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