Assume a bank loan requires an interest payment of $85 per year and a principal payment of $1,000 at the end of the loan's eight-year life

Finance Aug 10, 2020

Assume a bank loan requires an interest payment of $85 per year and a principal payment of $1,000 at the end of the loan's eight-year life. What would be the present value of this loan if it carried a 10% interest rate?

Expert Solution

Present value is as follows:

Present value = (PVAF @10%,8 * Interest ) +(PVF@ 10%,8 *Loan amount)

= (5.33493 * 85 ) + (.46651*1000)

= 453.47+ 466.51

= $ 919.98

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