A company has a loan that is due on December 30,2009.At that time they are required to pay $20,000.What was the original amount of the loan if it was taken out on September 30,2007 at j₄ = 12%?

Question

Quizplus · Accepted Answer

To solve this problem, we need to use the time value of money formula:

PV = FV / (1 + r)^n

Where PV is the present value (the amount of the loan), FV is the future value (the amount due on Dec 30,2009), r is the interest rate per period, and n is the number of periods.

We know that FV = $20,000, r = 0.12 (12%), and n = 8 (since the loan was taken out on September 30, 2007 and is due on December 30, 2009, which is 2 years and 3 months later, or 8 quarters).

So, plugging in the values, we get:

PV = $20,000 / (1 + 0.12)^8
PV = $20,000 / 2.415
PV = $15,328.33

Therefore, the original amount of the loan was $15,328.33.

Choice B) is the correct answer.

A Company Has a Loan That Is Due on December