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Elis [28]
3 years ago
13

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?
Mathematics
1 answer:
lapo4ka [179]3 years ago
3 0

Answer:

The present value is  PV  = \$ 396,987

Step-by-step explanation:

From the question we are told that

   The  interest payment per year is  C =  \$ 85

    The principal payment is  P =  \$ 1000

     The  duration is  n =  8   years

      The  interest rate is  r =  10\%  =  0.10

The present value is  mathematically represented as

      PV  =  [ \frac{C}{r} *  [1 - \frac{1 }{ (1 +r)^n} ] + \frac{P}{(1 + r)^n}  ]

substituting values

      PV  =  [ \frac{85}{0.10} *  [1 - \frac{1 }{ (1 +0.10)^8} ] + \frac{1000}{(1 + 0.10)^ 8}  ]

      PV  = \$ 396,987

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