Question

Josef Company borrowed money that must be repaid in 10 years. The company wants to make sure the loan will be repaid at the end of year 10. So it invests $12,400 at the end of each year at 9% interest compounded annually. What was the amount of the original loan? (Use Table 13.1) (Do not round intermediate calculations. Round your answer to the nearest cent.) Loan amount​

Answer 1

Based on the information given  the amount of the original loan is $188,391.96.

Using ordinary annuity table:

Compound sum of an annuity of $1 n=10 years, r=9%

Compound sum of an annuity of $1=15.1929

Hence:

Using this formula

Original loan amount=Amount invested× Sum of an annuity

Let plug in the formula

Original loan amount=$12,400×15.1929

Original loan amount=$188,391.96

Inconclusion the amount of the original loan is $188,391.96.

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