Question

Canliss Mining Company borrowed money from a local bank. The note the company signed requires five annual installment payments of $20,000 beginning one year from today. The interest rate on the note is 9%.(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.)

What amount did Canliss borrow? (Round your final answers to nearest whole dollar amount.)

Table or calculator function:
Payment:
n =
i =
Present Value:

Answer 1

We can use the present value of annuity formula to know the amount did Canliss borrow

The formula is as under,

PV of annuity = P *{[ 1 - (1+r)^-n ] / r}

PV of annuity = borrowing amount = ?

P = annual installment = $20,000

r = annual interest rate on note = 9%

n = no.of years = 5

PV of annuity = 20,000 *{[ 1 - (1+0.09)^-5 ] / 0.09}

PV of annuity = 20,000 * 3.88965

PV of annuity = $77,793

Amount borrowed by Canliss = $77,793 or $77,800(approx)