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 percent interest rate?
1 answer:
Answer:
$919.98
Step-by-step explanation:
To solve using a financial calculator do
N=8
I/Y=10
PMT=85
FV=1000
CMPT PV get 919.98
To do by hand find the present value of the interst payments
85*(1-(1/1.1)^8)
which is 453.4687
Find the present value of the final ballon payment
1000*(1/1.1)^8
which is 466.507
take the sum
466.507+453.4678= 919.98
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