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May 16th, 2010, 05:30 PM   #1
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Payment question

Suppose you buy a car and take out a loan of $15,000 at 9% annual interest to be paid back over four years. What is the yearly payment you must make to pay off the loan in four equal payments?

I get ((.09*15000)/(1-(1.09)^-4)) = $4630.03...

could you explain why this wouldn't be the answer?
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May 16th, 2010, 06:48 PM   #2
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Re: Payment question

Given that simple interest is to be applied the yearly payments are (4 * (15000 * .09) + 15000)/4 = $5,100.00. (Could be wrong of course).

It depends on how you interpret the question, no? For instance, is the interest charged against the $15,000 each year even though some of this principal will have been paid?

Why do you divide by 1 - 1.09^-4 ?
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