Jones Co. borrowed money that is to be repaid in 12 years. So that the loan will be paid back at end of the 12th year, the company invests $8,000 at end of each year at 5% compounded annually. The amount of the original loan was (use the tables in the handbook):

Question

Quizplus · Accepted Answer

Using the present value of an annuity table with n=12, i=5%, the present value of the annual payment of $8,000 is $79,376.80. To find the original loan amount, we need to use the future value formula: FV = PV(1+i)^n. Plugging in the known values, we get: FV = $79,376.80(1+0.05)^12 = $127,336.80. Therefore, the best choice is A.

Jones Co Borrowed Money That Is to Be Repaid in 12