Question

QUESTION 6
Maui Candy Company borrowed $400,000 to purchase a new building. Maui Candy signed a promissory note to repay the loan in 10 equal installments due
at the end of each year, starting one year from now. If the loan has a 5% interest rate, what is the amount of each payment?
O A. $31,802
O B. $245,564
OC. $51,802
O D. $42,000​

Answer 1

Answer:

OC. $51,802

Explanation:

The amount to be repaid every year is an annuity amount at 5% interest. The $400,000 is the future value of yearly payments for ten years. Annual payments are the present values

the applicable formula is

P   = PV ×    r

  1 − (1+r)−n

where Pv is 400,000

r is the interest rate at 0.05%

n is ten years

p= $400,000  x 0.05

  1-(1+ 0.05)-10

p=$400,000 x 0.05

  1-0.613913

p=$400,000 x(0.05 /0.386067)

p=$400,000 x 0.129510

p=51,804