Question
In: Accounting
Lowlife Company defaulted on a $130,000 loan that was due on December 31, 2021. The bank...
Lowlife Company defaulted on a $130,000 loan that was due on December 31, 2021. The bank has agreed to allow Lowlife to repay the $130,000 by making a series of equal annual payments beginning on December 31, 2022. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Calculate the required annual payment if the bank’s interest rate is 10% and four payments are to be made.
2. Calculate the required annual payment if the bank’s interest
rate is 8% and five payments are to be made.
3. If the bank’s interest rate is 10%, how many annual payments of
$34,294 would be required to repay the debt?
4. If three payments of $51,357 are to be made, what interest rate is the bank charging Lowlife?
Solutions
Expert Solution
Part 1
| Year | PV factor @10% | PVA factor @10% |
| 1 | 0.90909 | 0.90909 |
| 2 | 0.82645 | 1.73554 |
| 3 | 0.75131 | 2.48685 |
| 4 | 0.68301 | 3.16987 |
| Value of loan | $ 130,000 | |
| Divided: PVA factor @10% for 4 years | 3.16987 | |
| Annual payment | $ 41,011 |
Part 2
| Year | PV factor @8% | PVA factor @8% |
| 1 | 0.92593 | 0.92593 |
| 2 | 0.85734 | 1.78326 |
| 3 | 0.79383 | 2.57710 |
| 4 | 0.73503 | 3.31213 |
| 5 | 0.68058 | 3.99271 |
| Value of loan | $ 130,000 | |
| Divided: PVA factor @8% for 5 years | 3.99271 | |
| Annual payment | $ 32,559 |
Part 3
| Value of loan | $ 130,000 | |
| Divided: Annual payment | $ 34,294 | |
| PVA factor @10% for ??? years | 3.79075 | |
| Year | PV factor @10% | PVA factor @10% |
| 1 | 0.90909 | 0.90909 |
| 2 | 0.82645 | 1.73554 |
| 3 | 0.75131 | 2.48685 |
| 4 | 0.68301 | 3.16987 |
| 5 | 0.62092 | 3.79079 |
| PVA factor @10% is 3.79075 (Rounded to 3.79079) is found when the number of years is 5. | ||
| Number of years | 5 years |
Part 4
| Value of loan | $ 130,000 | ||
| Divided: Annual payment | $ 51,357 | ||
| PVA factor @??% for 3 years | 2.53130 | ||
| Year | PV factor @8% | PV factor @9% | PV factor @10% |
| 1 | 0.92593 | 0.91743 | 0.90909 |
| 2 | 0.85734 | 0.84168 | 0.82645 |
| 3 | 0.79383 | 0.77218 | 0.75131 |
| PVA (total) | 2.57710 | 2.53129 | 2.48685 |
| PVA factor for 3 years is 2.53130 (Rounded to 2.53129) is found when the interest rate is 9% | |||
| Interest rate | 9% |
ekkarill92 answered 2 years agoRelated Solutions
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