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6 October, 13:35

Lowlife Company defaulted on a $250,000 loan that was due on December 31, 2018. The bank has agreed to allow Lowlife to repay the $250,000 by making a series of equal annual payments beginning on December 31, 2019.

1. Calculate the required annual payment if the bank's interest rate is 10% and four payments are to be made.

2. Calculate the required annual payment if the bank's interest rate is 8% and five payments are to be made.

3. If the bank's interest rate is 10%, how many annual payments of $51,351 would be required to repay the debt?

4. If three payments of $104,087 are to be made, what interest rate is the bank charging Lowlife?

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  1. 6 October, 13:40
    0
    1. Present value = Annuity amount * PVA (n=4; i=10%)

    250,000 = Annuity amount*3.16987

    Annuity amount = $78,868

    2. Present value = Annuity amount * PVA (n=5; i=8%)

    250,000 = Annuity amount * 3.99271

    Annuity amount = $62,614

    3. i = 10%

    Annual payments = $51,351

    250,000 = 51,351 * X

    X = 4.86845

    When looking at the table of present value of an ordinary annuity, PVA of 4.86845 and i=10%, ⇒ n = 7 payments

    4.

    Payments = 104,087

    n = 3

    250,000 = 104,087*X

    X = 2.40184

    When looking at the table of present value of an ordinary annuity, PVA of 2.40184 and n=3, ⇒ i = 12%
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Home » Business » Lowlife Company defaulted on a $250,000 loan that was due on December 31, 2018. The bank has agreed to allow Lowlife to repay the $250,000 by making a series of equal annual payments beginning on December 31, 2019. 1.
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