I'm currently working on a homework problem where you lend a friend $40k and they pay you back in "6 equal annual installments commencing in exactly one year". What's tricky about this question is I need to figure out the amount of the annual payments with an interest rate of 8.0% p.a. compounded monthly, and I don't really know what to do.
I tried using the present value of annuities, rearranging to solve for cash flow, and then plugging in all my variables. But I especially was unsure what to do with the number of payments (exponent 'n' in the EAR). I would think it should be 6 because my friend is only making 6 payments, but since I divide 'i' by 12 due to the compounded monthly bit I should have to multiply 6 by 12. Except that goes against what the problem say's of only making 6 payments. I've tried both ways ('n=6, n=72') and neither worked. I also thought that by doing 'n=72', this would be the price my friend would pay if he was doing monthly installments so I tried multiplying that by 12 (to equal how much he'd pay per year) but that didn't work either.
What am I missing with this question?
