Compute the amount that can be borrowed under each of the following circumstance

Question

Compute the amount that can be borrowed under each of the following circumstances: (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your "Table value" to 4 decimal places.) 1, A promise to repay $90,000 seven years from now at an interest rate of 6%. 2. An agreement made on February 1, 2016, to make three separate payments of $20,000 on February 1 of 2017, 2018, and 2019. The annual interest rate is 10%. Option 1 Table Value Amount Present Value Loan amount Option 2 Table Value Amount Present Value Annual payments

Explanation / Answer

1) Option 1 Table Value Amount Present Value Loan Amount 0.6651 $       90,000 $            59,859 Thus, Loan amount is $ 59,859 working; Present Value of 1 = (1+i)^-n Where, = (1+0.06)^-7 i 6% =                 0.6651 n 7 2) Option 2 Table Value Amount Present Value Annual Payments 2.4869 $       20,000 $            49,738 Thus, Loan amount is $ 49,738 working; Present Value of annnuity of 1 = (1-(1+i)^-n)/i Where, = (1-(1+0.10)^-3)/0.10 i 10% =                 2.4869 n 3

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