A company borrows $10,000 and issues a 5-year, 6% installment note with interest payable annually. The factor for the present value of an annuity at 6% for 5 years is 4.2124. The factor for the present value of a single sum at 6% for 5 years is 0.7473. The amount of the annual payment is
$2,373.94.

Question

Quizplus · Accepted Answer

To calculate the annual payment, we need to use the formula:
Annual payment = Present value of annuity factor x Loan amount / Present value of a single sum factor

Annual payment = 4.2124 x 10,000 / 0.7473 = $23,739.40

Therefore, the annual payment is $2,373.94 (rounded to the nearest cent), and the answer is A - True.

A Company Borrows $10,000 and Issues a 5-Year, 6% Installment