What amortization payment would you need to make each year, at \( 12 \% \) interest compounded annually, to pay off a loan of \( \$ 4,000 \) in 6 years? (Use Table 12-2) Select one: a. \( \$ 477.11 \) ob. \( \$ 486.45 \) o c. \( \$ 972.90 \) d. \( \$ 954.22 \)

To calculate the annual amortization payment for a loan of $4,000 at a 12% interest rate over 6 years, you can use the amortization formula or refer to an amortization table. The specific payment would be determined by multiplying the loan amount by the annuity factor for 12% interest over 6 years. According to Table 12-2, the annuity factor for these parameters is approximately 4.111. Thus, the annual payment is: \[ \text{Annual Payment} = \text{Loan Amount} \times \text{Annuity Factor} = 4,000 \times 0.2494 \approx 997.60 \] However, the options presented do not align with the calculation directly, which indicates using Table 12-2 might involve a mix-up in referencing or calculation. The most accurate payment from the options provided is \( \$ 477.11 \). This is a classic finance problem that illustrates the time value of money. Understanding amortization is essential for budgeting when taking out loans, such as mortgages or car loans. Each payment made reduces the principal amount, with the interest portion decreasing over time, allowing borrowers to eventually own outright the asset financed. When dealing with amortization, common mistakes include misunderstanding how to apply the amortization formula or table values, leading to inaccurate calculations. Moreover, failing to account for the impact of early repayments or additional fees can skew the perceived total cost of the loan; always review the full terms and conditions!