Cromwell is acquiring some land for $1,200,000 in exchange for semiannual payments of $75,000 at an interest rate of 6.35 percent.How many years will it take Cromwell to pay for this purchase?

Question

Quizplus · Accepted Answer

To find the number of years, we need to calculate the present value of an annuity. The formula for the present value of an annuity is: PV = PMT × [(1 - (1 + r)^-n) / r], where PV is the present value, PMT is the payment amount, r is the interest rate per period, and n is the number of periods. Here, PV = $1,200,000, PMT = $75,000, and r = 6.35%/2 = 0.03175 (since payments are semiannual). Solving for n gives approximately 22.7 periods, which is about 11.35 years (since there are two periods per year).

Cromwell Is Acquiring Some Land for $1,200,000 in Exchange for Semiannual