You have a loan outstanding. It requires making seven annual payments of S5,000

Question

You have a loan outstanding. It requires making seven annual payments of S5,000 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 9%, 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 (Round to the nearest dollar)

Explanation / Answer

Solution :- The value of the amount of loan in which a $5000 need to pay for 7 years = 5000*PVAF(9%,7) 5000*5.0329 25164.5 Means the amount of loan today = 25164.50 Now if we make a single payment after 7 years the amount we need to pay is 25164.50*(1+0.09)7 25164.50*1.83 46051.04 Therefore the answer is 46051.04

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