A company must repay the bank a single payment of $20,000 cash in 3 years for a loan it entered into.The loan is at 8% interest compounded annually.The present value of 1 (single sum)at 8% for 3 years is 0.7938.The present value of an annuity (series of payments)at 8% for 3 years is 2.5771.The present value of the loan (rounded)is:

Question

Quizplus · Accepted Answer

The present value of the loan can be calculated using the formula:
PV = FV x (1 + r)-n
where FV is the future value of the single payment, r is the interest rate per period, and n is the number of periods.

In this case, FV = $20,000, r = 8%, and n = 3 years.

Therefore, PV = $20,000 x (1 + 0.08)-3
PV = $20,000 x 0.7938
PV = $15,876

Therefore, the best choice is A.

A Company Must Repay the Bank a Single Payment of $20,000