To calculate the equal annual payment required to complete repayment of a loan in 4 years, we can use

the concept of an amortization schedule.

(a) If interest is charged on the loan principal, we need to calculate the equal annual payment using the
amortization formula. The formula to calculate the equal annual payment is as follows:

Equal Annual Payment = Principal / Present Value Annuity Factor

Given: Loan amount (Principal): $10,000 Loan term: 4 years Interest rate: 10% per year

First, let's calculate the Present Value Annuity Factor using the interest rate and loan term. The Present
Value Annuity Factor can be found using financial tables or calculated using the following formula:

Present Value Annuity Factor = (1 - (1 + r)^(-n)) / r

Where: r = interest rate per period (10% per year in this case) n = number of periods (4 years in this case)

Present Value Annuity Factor = (1 - (1 + 0.10)^(-4)) / 0.10 Present Value Annuity Factor ≈ 3.16986

Now, we can calculate the equal annual payment: Equal Annual Payment = Principal / Present Value
Annuity Factor Equal Annual Payment = $10,000 / 3.16986 Equal Annual Payment ≈ $3,154.15

Therefore, if interest is charged on the loan principal, an equal annual payment of approximately
$3,154.15 would be required to complete repayment of the loan in 4 years.

(b) If interest is charged on the unrecovered balance, the equal annual payment required would be
different. In this case, we can use the concept of an amortizing loan.

To calculate the equal annual payment, we need to determine the annual payment amount that will
amortize the loan over 4 years with interest charged on the unrecovered balance. The formula to
calculate the equal annual payment for an amortizing loan is as follows:

Equal Annual Payment = (Principal + (Principal × r)) / n

Where: r = interest rate per period (10% per year in this case) n = number of periods (4 years in this case)

Equal Annual Payment = ($10,000 + ($10,000 × 0.10)) / 4 Equal Annual Payment = $11,000 / 4 Equal
Annual Payment = $2,750

Therefore, if interest is charged on the unrecovered balance, an equal annual payment of $2,750 would
be required to complete repayment of the loan in 4 years