You have a loan outstanding. It requires making seven annual payments of $ 2,000

Question

You have a loan outstanding. It requires making seven annual payments of $ 2,000 each at the end of the next seven years. Your bank has offered to restructure the loan so that instead of making the seven payments as originally agreed, you will make only one final payment in seven years. If the interest rate on the loan is 8 %, what final payment will the bank require you to make so that it is indifferent to the two forms of payment? The final payment the bank will require you to make is $ nothing. (Round to the nearest dollar.)

Explanation / Answer

Future value of annuity=Annuity[(1+rate)^time period-1]/rate

=$2000[(1.08)^7-1]/0.08

=$2000*8.92280336

which is equal to

=$17846(Approx),

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