Question

Texas Foods has a loan that requires one lump sum payment at the end of 12 years in the amount of $139,000. The interest rate is 5.8 percent, compounded monthly. What amount did the firm borrow

Answer 1

Answer:

Amount borrowed = $69,418.30

Explanation:

The amount borrowed by Texas Foods would be the present value of the $139,000 payable at the the ed of year 12 with a discount rate of 5.8% computed monthly

PV = A×  (1+ r/m)^(-m×n)

P= Amount borrowed-?

A= Lump sum payment- 139,000

r- interest rate- 5,8%

m- number of times compounding is done- 12

r/m= 5.8%/12=0.483%

PV - 139,000 × (1+0.004833)^(-12× 12)=69,418.30

Amount borrowed = $69,418.30