Your company borrows $75,000 today to fund its growth initiatives. It must repay the bank in four annual payments of $26,600 at the end of each year. What annual interest rate is your firm paying?
A) 15.62 percent
B) 17.18 percent
C) 14.74 percent
D) 16.97 percent

Question

Quizplus · Accepted Answer

The correct answer is A because the annual interest rate is 15.62 percent. This can be calculated using the formula for the present value of an annuity, which is:PV = PMT * [1 - (1 + r)^-n] / rwhere:PV is the present value of the annuityPMT is the annual paymentr is the annual interest raten is the number of yearsIn this case, we have:PV = $75,000PMT = $26,600n = 4Substituting these values into the formula, we get:$75,000 = $26,600 * [1 - (1 + r)^-4] / rSolving for r, we get:r = 15.62%

Your Company Borrows $75,000 Today to Fund Its Growth Initiatives