Formula:
The formula used to calculate annual payments is derived from the standard loan payment formula:
Annual Payment = [ P × r × (1 + r)n ] / [ (1 + r)n – 1 ]
Where:
P = Principal Loan Amount (the initial amount borrowed)
r = Annual Interest Rate (as a decimal, e.g., 5% is 0.05)
n = Loan Term in Years (the total number of years to repay the loan)