Which formula would you use to solve for the payment, Financial Management

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Which formula would you use to solve for the payment required for a car loan if you know the interest rate, length of the loan, and the borrowed amount?  Explain.

To answer for k when the known values are n, PVA and PMT, start with the current value of an annuity formula as follows:

                              Present Value of an Annuity Formula Table Method

                                                    PVA = PMT(PVIFA k, n)

                              Next, rearrange terms and solve for (PVIFA k, n) as follows

                                                    PVA / PMT = (PVIFA k, n)

At present refer to the PVIFA values in the text, you know n, thus find the n row equivalent to the number of periods in your problem on the left hand side of the table. You have as well determined the PVIFA, thus move across the n row until you find or come close to the value of PVIFA that you have solved for.  The percent column in which the value is placed is the interest rate.

 

 


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