Lowlife Company defaulted on a $120,000 loan that was due on December 31, 2021. The bank has agreed to allow Lowlife to

Question

Lowlife Company defaulted on a $120,000 loan that was due on December 31, 2021. The bank has agreed to allow Lowlife to repay the $120,000 by making a series of equal annual payments beginning on December 31, 2022. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 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 $37,856 would be required to repay the debt? 4. If three payments of $48,254 are to be made, what interest rate is the bank charging Lowlife?

Help In Homework · Accepted Answer

1. Computation of Amount of Annual payment: Annual payment = $120,000 / PVAF @10%, for 4 year = $120,000 / 3.1699 Annual payment = $37,856.08 2. Computation of Amount of Annual payment: Annual payment = $120,000 / PVAF @ 8% for 5 Year = $120,000 / 3.9927 Annual Payment = $30,054.85 3. Computation of No. of Annual Payment Made: $120,000 = $37,856 * PVA of $1 (10%, n) PVA of $1 (10%, n) = $120,000/$37,856 PVA of $1 (10%, n) = 3.1699 As per Present Value Table , n = 4 Hence, No. of Annual payment wil be 4. 4. Computation of Interest Rate: $120,000 = $48,254 * PVA of $1 (i%, 3) PVA of $1 (i%, 3) = $120,000/$48,254 PVA of $1 (i%, 3) = 2.4868 As per Present Value Table , i = 10% Hence, Interest Rate Charged will be 10%

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Lowlife Company defaulted on a $120,000 loan that was due on December 31, 2021

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