HAS Question 3 (of 10) value 10.00 points A small business owner visits her bank

Question

HAS Question 3 (of 10) value 10.00 points A small business owner visits her bank to ask tor a loan. The owner states that she can repay a loan at $2,400 per month for the next three years and then $4,800 per month for two years after that. If the bank is charging customers 8.50 percent APR, how much would it be willing to lend the business owner? (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Present value References eBook & Resources Worksheet Check my work

Explanation / Answer

Monthly Payment for 3 years = $2,400
Monthly Payment for next 2 years = $4,800
Annual Interest Rate = 8.50%
Monthly Interest Rate = 0.7083%

Present Value = $2,400/1.007083 + $2,400/1.007083^2 + $2,400/1.007083^3 + … + $2,400/1.007083^36 + $4,800/1.007083^37 + $4,800/1.007083^38 + $4,800/1.007083^39 + … + $4,800/1.007083^60
Present Value = $2,400 * (1 - (1/1.007083)^36) / 0.007083 + ($4,800/1.007083^36) * (1 - (1/1.007083)^24) / 0.007083
Present Value = $76,027.92 + $81,904.04
Present Value = $157,931.96

So, bank will be able to lend $157,931.96

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