Question

Lang Warehouses borrowed $131,300 from a bank and signed a note requiring 9 annual payments of $15,328 beginning one year from the date of the agreement. (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:Determine the interest rate implicit in this agreement. (Round interest rate to 1 decimal place.)Solve for iPresent value: n = i %
Annuity payment

Answer 1

Answer:

The interest rate implicit in this agreement is 1%

Explanation:

Present Value = $131,300

n = 9

i = ?

Annuity Payment = $15,328

Use the following formula to calculate the interest rate

PV of Annuity payment = Annuity Payment x ( 1 - ( 1 + r )^-n / r

$131,300 = $15,328 x ( 1 - ( 1 + r )^-9 / r

$131,300 / $15,328 = ( 1 - ( 1 + r )^-9 / r

8.5660 = ( 1 - ( 1 + r )^-9 / r

using Annuity Table the 8.5662 annuity factor for 9 payments shows under 1% interest rate.

So, the answer is 1%