Question

You have a loan outstanding. It requires making 3 annual payments of $1000 each at the end of 3 the next years. Your bank has offered to restructure the loan so that instead of making the 3 payments as originally​ agreed, you will make only one final payment in 3 years. If the interest rate on the loan is 5%​, 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.)

Answer 1

Answer: $3,153

Explanation:

The amount that will make you indifferent is the future value of the 3 payments at the end of those 3 years at 5%.

Future value of Annuity = Annuity * Future Value interest factor, 3 years, 5%

= 1,000 * 3.1525

= $3,153

Bank will require a final payment of $3,153 for you to be indifferent.