On August 1, a $30,000, 6%, 3-year installment note payable is issued by a company. The note requires equal payments of principal plus accrued interest be paid each year on July 31. The present value of an annuity factor for 3 years at 6% is 2.6730. The present value of a single sum factor for 3 years at 6% is 0.8396. The payment each July 31 will be:
A) $80,190,00.
B) $10,000.00.
C) $10,400.00.
D) $11,223.34.
E) $1,223.34.

Question

Quizplus · Accepted Answer

The payment each July 31 can be calculated using the following formula:

Payment = Loan amount / Present value of annuity factor

Where, Loan amount = $30,000 and Present value of annuity factor = 2.6730

Therefore, payment = $30,000 / 2.6730 = $11,223.34 (rounded to the nearest cent)

Option D is the closest to the calculated payment.

On August 1, a $30,000, 6%, 3-Year Installment Note Payable