Question

Otto Co. borrows money on April 30, 2016, by promising to make four payments of $29,000 each on November 1, 2016; May 1, 2017; November 1, 2017; and May 1, 2018. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round "Table Factor" to 4 decimal places.)

a. How much money is Otto able to borrow if the interest rate is 4%, compounded semiannually?

b. How much money is Otto able to borrow if the interest rate is 8%, compounded semiannually?

c. How much money is Otto able to borrow if the interest rate is 10%, compounded semiannually?

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.)

A promise to repay $93,000 five years from now at an interest rate of 9%.

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 6%.

Answer 1

Solution 1a:

Semiannual payments = $29,000

Interest rate = 4% annual, 2% semiannual

Period = 4 semiannual

Amount Otto able to borrow = Present value of semiannual payments discounted at 2% for 4 periods

= $29,000 * Cumulative PV factor at 2% for 4 periods

= $29,000 * 3.8077 = $110,423

Solution 1b:

Semiannual payments = $29,000

Interest rate = 8% annual, 4% semiannual

Period = 4 semiannual

Amount Otto able to borrow = Present value of semiannual payments discounted at 4% for 4 periods

= $29,000 * Cumulative PV factor at 4% for 4 periods

= $29,000 * 3.6299 = $105,267

Solution 1c:

Semiannual payments = $29,000

Interest rate = 10% annual, 5% semiannual

Period = 4 semiannual

Amount Otto able to borrow = Present value of semiannual payments discounted at 5% for 4 periods

= $29,000 * Cumulative PV factor at 5% for 4 periods

= $29,000 * 3.546 = $105,267 = $102,833

Note: Information and requirement is not completely given for remaining questions therfore same cannot be answered.