Answer:
489.92
Explanation:
The formula for the present value of an ordinary annuity below can be used to determine the size of annual payment wherein the formula is rearranged to make annual payment the subject of the formula:
PV=Annual payment*(1-(1+r)^-n/r
PV=price paid today=3,890
Annual payment= the unknown
r=effective rate of interest=10.8%
n=number of annual payments expected=19
3,890=Annual payment*(1-(1+10.8%)^-19/10.8%
3,890=Annual payment*(1-(1.108)^-19/0.108
3,890=Annual payment*(1-0.142476931 )/0.108
3,890=Annual payment*0.857523069 /0.108
Annual payment=3,890*0.108/0.857523069
Annual payment= 489.92
