Question

Blossom Productions borrowed some money from the California Finance Company at a rate of 15.80 percent for a seven-year period. The loan calls for a payment of $1,692,000 each year beginning today. How much did Blossom borrow?

Answer 1

Information provided:

Yearly payment= $1,692,000

Time= 7 years

Interest rate= 15.80%

The question is solved by computing the present value of annuity due.

This can be solved using a financial calculator by inputting the below into the calculator:

The financial calculator is set in the end mode. Annuity due is calculated by setting the calculator to the beginning mode (BGN). To do this, press 2^nd BGN 2^nd SET on the Texas BA II Plus calculator.

Enter the below in a financial calculator in BGN mode:

PMT= 1,692,000

N= 7

I/Y= 15.80

Press the CPT key and PV to compute the present value of annuity due.

The value obtained is 7,959,746.82.

Therefore, Blossom borrowed $7,959,746.82.

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