Question

Flint Company purchased a machine at a price of $107,300 by signing a note payable, which requires a single payment of $132,204 in 2 years. Click here to view factor tables Assuming annual compounding of interest, what rate of interest is being paid on the loan? (Round answer to 0 decimal places, e.g. 13%.) Rate of interest Entry field with incorrect answer now contains modified data %

Answer 1

Flint Company purchased a machine at a price of $107,300 by signing a note payable, which requires a single payment of $132,204 in 2 years.

Present value = $107,300

Future value = $132,204

Time period (n) = 2 years

Interest rate (i) = ?

Present value = Future x Present value factor (i%, n)

107,300 = 132,204 x Present value factor (i%, 2)

Present value factor (i%, 2) = 107,300/132,204

= 0.81162

Now, present value factor 0.81162 will be located in present value factor table in year 2 row.

Factor 0.81162 can be seen in year 2 row, when interest rate is 11%.

Hence, rate of interest being paid on the loan = 11%