An S&L provides a loan with 15 yearly repayments of £8,000 with the ﬁrst payment beginning immediately.Which of the following amounts comes closest to the present value of the loan if the
Interest rate is 7%?

Question

Quizplus · Accepted Answer

To find the present value (PV) of this loan, we need to use the formula for the present value of an annuity:

PV = PMT x [(1 - (1+r)^-n)/r]

where PV is the present value, PMT is the constant payment amount, r is the interest rate per period, and n is the number of periods.

In this case, PMT = £8,000, r = 7% per year, and n = 15 years. Plugging these values into the formula gives:

PV = £8,000 x [(1 - (1+0.07)^-15)/0.07] ≈ £77,964

Therefore, the closest amount to the present value of the loan is £77,964, which is answer choice B.

An S&L Provides a Loan with 15 Yearly Repayments of £8,000