Which of the following must be known in order to compute the interest rate when financing an asset purchase with an annuity?
A) Fair value of the asset purchased, number and dollar amount of the annuity payments.
B) Present value of the annuity, dollar amount and timing of the annuity payments.
C) Fair value of the asset and timing of the annuity payments.
D) Number of annuity payments and future value of the annuity.

Question

Quizplus · Accepted Answer

In order to compute the interest rate when financing an asset purchase with an annuity, we need to know the present value of the annuity, the dollar amount and timing of the annuity payments. This information is required to calculate the interest rate using the formula for the present value of an annuity. The fair value of the asset purchased is not relevant to calculating the interest rate, and the future value of the annuity is also not necessary.

Which of the Following Must Be Known in Order to Compute