Question

Canliss Mining Company borrowed money from a local bank. The note the company signed requires five annual installment payments of $16,500 not due for three years. The interest rate on the note is 7%.

What amount did Canliss borrow?

Answer 1

Step 1 :	Loan value at the end of year 2
	Present Value Of An Annuity
	= C*[1-(1+i)^-n]/i]
	Where,
	C= Cash Flow per period
	i = interest rate per period
	n=number of period
	= $16500[ 1-(1+0.07)^-5 /0.07]
	= $16500[ 1-(1.07)^-5 /0.07]
	= $16500[ (0.287) ] /0.07
	= $67,653.26
Step 2 :	Loan value today
	PV= FV/(1+r)^n
	Where,
	FV= Future Value
	PV = Present Value
	r = Interest rate
	n= periods in number
	= $67653.26/( 1+0.07)^2
	=67653.26/1.1449
	= $59090.98