A small business owner visits his bank to ask for a loan. The owner states that he can repay a loan at $1,500 per month for the next three years and then $500 per month for the two years after that. If the bank is charging customers 5.5 percent APR, how much would it be willing to lend the business owner?
A) $4,046.90
B) $59,293.50
C) $24,261.00
D) $66,000.00

Question

Quizplus · Accepted Answer

The bank would calculate the present value of the loan repayments using the given APR. The present value of the first three years of payments ($1,500 per month) and the next two years of payments ($500 per month) at a 5.5% annual interest rate would be approximately $59,293.50.

A Small Business Owner Visits His Bank to Ask for a Loan