An S&L provides a loan with 15 yearly repayments of $10,000 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

Using the formula for the present value of an annuity, we get:

Present value = Payment x [1 - (1/ (1+r)^n)] / r
where r is the interest rate per period and n is the number of periods.

Substituting the given values:
r = 7% per year
n = 15 years
Payment = $10,000 per year

We get:

Present value = $10,000 x [1 - (1/(1+0.07)^15)] / 0.07
= $97,454.87

Therefore, the closest option is B) $97,455.

An S&L Provides a Loan with 15 Yearly Repayments of $10,000