HdG,Inc.accepts a $100,000,5% note from Aberdeen Unlimited on 4/1/16,and lends money to Aberdeen.Aberdeen agrees to pay 5 equal annual payments on this note beginning 3/31/17.The market rate at the date of issuance of this note was 5%.What is the annual payment that HdG will receive for this note?

Question

Quizplus · Accepted Answer

Using the present value of an annuity formula: 
PV = PMT x (1 - 1/(1+r)^n) / r
Where PV is the present value of the note, PMT is the annual payment, r is the market rate, and n is the number of periods.
PV = $100,000 (the note's face value)
r = 5%
n = 5 years
PMT = PV x r / (1 - 1/(1+r)^n) = $23,097. Therefore, the annual payment that HdG will receive for this note is $23,097. Answer B is correct.

HdG,IncAccepts a $100,000,5% Note from Aberdeen Unlimited on 4/1/16,and Lends