Thread: Annual Payment

Hi, this is related to business, as its in the quantitative papers.

You are paying off a £10,000 loan in 24 yearly instalments. You are charged 5% per annum. What should your annual payment be to the nearest pound?

Is there a formula for working this out? I cant seem to find the answer. Is it possible to tell me how to work this out? and the answer as well?

Many thanks!

P = Ai / (1 - x) where x = 1 / (1 + i)^n

P = Payment (?)
A = Amount borrowed (10,000)
i = interest rate (.05)
n = number of years (24)

Yokay?

Hi, thanks for the reply. So its done like this:

P = Ai / (1 - x) where x = 1 / (1 + i)^n

P = Payment (?)
A = Amount borrowed (10,000)
i = interest rate (.05)
n = number of years (24)

P= (10,000*.05)/(1-0.3100679103)=
500/0.6899320897=724.71, and round it up is £725.

Hey, thanks there!

-
Find out x, so 1/(1+.05)^24=1/(1.05)^24=3.225099944, then 1/3.225099944=0.3100679103. Then thats the answer for x.

Yep.
And if you wanted 24 months instead of 24 years, then:
10000(.05/12) / [1 - 1/(1 + .05/12)^24] = 438.71

Cheers! would take note of that. how do u remember all these formulas by heart? its so hard, lol.

why do u need certain formulas for it? and how do u know immediately?