Question

1.You are borrowing $100,000 for an amortized loan with terms that include annual payments,6 year loan, and interest rate of 4.5 per year.  How much are your equal annual payments?  Answer to the nearest cent xxx.xx, and do not enter the dollar sign.

2.Calculate the total present value of the following three cash flows: $15  obtained one year from today, $24 obtained two years from today, and $30 obtained three years from today.  Use 6.7% as the interest rate.  Answer to the nearest cent,  xxx.xx and enter without the dollar sign.

Answer 1

Answer to Question 1:

Amount borrowed = $100,000
Interest rate = 4.50%
Number of payments = 6

Let annual payment be $x

$100,000 = $x/1.045 + $x/1.045^2 + $x/1.045^3 + $x/1.045^4 + $x/1.045^5 + $x/1.045^6
$100,000 = $x * (1 - (1/1.045)^6) / 0.045
$100,000 = $x * 5.157872
$x = $19,387.84

Annual payment = $19,387.84

Answer to Question 2:

Cash flow, Year 1 = $15
Cash flow, Year 2 = $24
Cash flow, Year 3 = $30

Interest rate = 6.70%

Present value = $15/1.067 + $24/1.067^2 + $30/1.067^3
Present value = $59.83