A company borrowed $40,000 cash from the bank and signed a 6-year note at 7% annual interest.The present value of an annuity factor for 6 years at 7% is 4.7665.The present value of a single sum factor for 6 years at 7% is 0.6663.The annual payments equal:
A)$26,652.00.
B)$8,391.90.
C)$40,000.00.
D)$60,033.02.
E)$190,660.00.

Question

Quizplus · Accepted Answer

Using the present value of an annuity factor:
Annual payment = (Loan amount x interest rate x present value of an annuity factor) / (present value of an annuity factor - 1)
Annual payment = (40,000 x 0.07 x 4.7665) / (4.7665 - 1)
Annual payment = $8,391.90

Therefore, the correct answer is B) $8,391.90.

A Company Borrowed $40,000 Cash from the Bank and Signed