Your business borrows $100,000 from a bank. You and the bank negotiate an installment loan in which you will pay off the loan over four years. The effective annual interest rate is 6 percent. The bank wants your business to amortize one-fourth of the principal amount each year. Amortize means to pay down the principal value of the loan. At the end of the first year, for instance, your business has to pay $25,000 on the principal balance of the loan plus interest for that year, and so on for the following three years. You sign the note to the bank and receive $100,000, which is deposited in your business”s checking account. Using the basic premise of the preceding question, suppose the bank wants equal payments at the end of each year. (In the preceding answer, the total payment varies year to year.) What is the annual payment on the loan under these terms?
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