answer all Homework: Assignment 04 Save Score: 0 of 1 pt 2 of 15 (1 complete) HW
ID: 2818112 • Letter: A
Question
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Homework: Assignment 04 Save Score: 0 of 1 pt 2 of 15 (1 complete) HW Score: 10%, 2 of 20 pts P4-13 (similar to) E Question Help You have a loan outstanding. It requires making 4 annual payments at the end of the next 4 years of $6,000 each. Your bank has offered to allow you to skip making the next 3 payments in lieu of making one large payment at the end of the loan's term in 4 years. If the interest rate on the loan is 567%, what final payment will the bank require you to make so that it s indifferent between the two forms of payment? The present value of the cash flows is s FRound to the nearest dollar)Explanation / Answer
We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.
Hence
A=6000(1.0567)^3+6000(1.0567)^2+6000(1.0567)^1+6000
=6000[(1.0567)^3+(1.0567)^2+(1.0567)^1+1]
=6000*4.3532418
which is equal to
=$26,119.451 (Approx).
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