?You have a loan outstanding

Finance Sep 12, 2020

?You have a loan outstanding. It requires making four annual payments of $8,000 each at the end of the next four years. Your bank has offered to restructure the loan so that instead of making the four payments as originally? agreed, you will make only one final payment in four years. If the interest rate on the loan is 5%?, what final payment will the bank require you to make so that it is indifferent to the two forms of? payment?

Expert Solution

Future value of annuity=Annuity* [(1+rate)^ time period- 1]/ rate

given,

Annuity= 8000

Rate= 5%

Time period= 4

Put the values in the formula;

=8000* [(1+ 5%)^4-1]/ 5%

=8000* 4.310125

= $34,481

Archived Solution

Unlocked Solution

You have full access to this solution. To save a copy with all formatting and attachments, use the button below.

Already a member? Sign In

Important Note: This solution is from our archive and has been purchased by others. Submitting it as-is may trigger plagiarism detection. Use it for reference only.

For ready-to-submit work, please order a fresh solution below.

Or get 100% fresh solution

Get Custom Quote