Question 3 (25 points) d Isaac is borrowing $200,000 from StartUp Bank to open a

Question

Question 3 (25 points) d Isaac is borrowing $200,000 from StartUp Bank to open a Wilderness Outfitters Shop. Isaac agrees to repay the loan at 10% per year compounded annually. Since Isaac expects it to be a few years before the business earns a profit, he has arranged for no payments on the loan until the end of the third year. The first payment is due 3 years from today in the amount of $50,000. No payment is made at end of year 4. Starting at the end of year 5, a series of four (4) annual end of year payments is to be made. Each of these payments is of size $X. Determine the numeric value of X from Isaac's perspective.

Explanation / Answer

3.

Loan amount to be borrowed = $200000

R = 10%

Payment made 3 years from now = $50000

Annual payments in the end of year 5, 6, 7 & 8 = X

Then,

200000 = 50000/(1+10%)^3 + (X*(1-1/(1+10%)^4)/.1)*(1/(1+10%)^4)

200000 = 37565.74 + X*3.17*.6830

X = (200000-37565.74)/( 3.17*.6830)

X = 75023.56

So, value of X will be 75023.56.

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