Use the formula for the present value of an ordinary annuity or the amortization formula to solve the following problem.

Question

Use the formula for the present value of an ordinary annuity or the amortization formula to solve the following problem. PV=​$5,000​; i=0.01​; PMT=​$250​; n=​?

n=________

​(Round up to the nearest​ integer.)

Answer 1

n = -ln(1 - PV*i/PMT)/ln(1 + i) =

-ln(1 - 5000 * .01/250)/ln(1 + .01) = -ln(.8)/ln(1.01) = 22.43

We will have 22 full payments and a partial 23rd payment.

n = 23