You lend a friend $, which your friend will repay in equal annual end-of-year payments of $, with the first payment to be r
1 answer:
Answer: 18%
Explanation:
The payments that your friend will make are an annuity as they are constant. This means that the loan amount of $15,000 is the present value of the annuity.
To find the rate of return, use the factor tables.
Present value of annuity = Annuity * Present value interest factor of annuity, 14 years, ?%
15,000 = 3,000 * Present value interest factor of annuity, 14 years, ?%
Present value interest factor of annuity, 14 years, ?% = 15,000 / 3,000
Present value interest factor of annuity, 14 years, ?% = 5.0
Go to the present value of annuity factor table and find out what interest rate intersects with 14 periods such that the factor is 5.0.
That rate is 18%.
Rate of return is therefore 18%.
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Answer:
We can withdraw an equivalent annuity of $ 293.658 each year.
Explanation:
We build a scheduled table to know the future value of the gradient investment
Time Beg Gradient Total Rate Ending
1 $100.00 $100.00 $100.00 0.060 $106.00
2 $106.00 $100.00 $206.00 0.060 $218.36
3 $218.36 $200.00 $418.36 0.060 $443.46
4 $443.46 $300.00 $743.46 0.060 $788.07
5 $788.07 $400.00 $1,188.07 0.060 $1,259.36
6 $1,259.36 $500.00 $1,759.36 0.060 $1,864.92
7 $1,864.92 $600.00 $2,464.92 0.060 $2,612.81
Then, we solve for the equivalent annuity-due:
PV 2,613
time 7
rate 0.06
C $ 293.658
Itis annuity due as we will going to retire cash in a 6 year period for seven times. (at each year-end during 6 years thus, annuity-due
1st 2nd 3rd 4th 5th 6th 7th
/-------/-------/-------/-------/-------/-------/-------/
1 2 3 4 5 6 7