Question

A company borrowed $40,000 cash from the bank and signed a 6-year note at 7% annual interest. the present value of an annuity factor for 6 years at 7% is 4.7665.the present value of a single sum factor for 6 years at 7% is 0.6663. the annual annuity payments equal:

Answer 1

The present value (PV) of an annuity of P equal periodic payments for n years at r% is given by:

$PV=Pa_{n\rceil r}$

where $a_{n\rceil r}$ is the present value of an annuity factor for n years at r%.

Given that a company borrowed $40,000 cash from the bank and signed a 6-year note at 7% annual interest and that the present value of an annuity factor for 6 years at 7% is 4.7665.

Then

$40000=4.7665P \\ \\ P= \frac{40000}{4.7665} =8,391.90$

Therefore, the annual annuity payments equals $8,391.90