Question

In: Finance

 ​(A) You've been offered a loan of $25,000​, which you will have to repay in 15...

 ​(A) You've been offered a loan of $25,000​, which you will have to repay in 15 equal annual payments of $4,000​ with the first payment due one year from now. What interest rate would you pay on that​ loan?

(B) Determine the present value of an annuity due of $5,000 per year for 8 years discounted back to the present at an annual rate of 14 percent. What would be the present value of this annuity due if it were discounted at an annual rate of 19 percent?

(C)What is the present value of a $210 perpetuity discounted back to the present at 12 percent?

Solutions

Expert Solution

 ​(A) You've been offered a loan of $25,000​, which you will have to repay in 15 equal annual payments of $4,000​ with the first payment due one year from now. What interest rate would you pay on that​ loan?

PV = 25,000

N = 15

PMT = -4,000

FV = 0

CPT I/Y

I/Y = 13.653835%

The interest rate on the loan = 13.653835%

(B) Determine the present value of an annuity due of $5,000 per year for 8 years discounted back to the present at an annual rate of 14 percent.

What would be the present value of this annuity due if it were discounted at an annual rate of 19 percent?

(C)What is the present value of a $210 perpetuity discounted back to the present at 12 percent?

PV = CF/r

PV = 210/0.12

PV = $1,750

jeff jeffy answered 1 year ago
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