Millie Company borrowed $550, 000 on December 31, 2010.The loan will be paid with six equal annual payments of $115, 388, beginning on December 31, 2011.The rate of interest compounded annually for the loan is

Question

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The loan is an annuity problem where the present value of the annuity (the loan amount) is $550,000, and the annuity payment is $115,388. Using the formula for the present value of an annuity, we can solve for the interest rate that equates these values. The calculations show that a 7% interest rate satisfies this condition.

Millie Company Borrowed $550, 000 on December 31, 2010