How much can you borrow today if you can make payments of $3,600 a year for the next five years and the interest rate is 10%?
A)$13,646.83
B)$12,235.32
C)$18,978.36
D)$15,797.84
E)$17,949.67

Question

Quizplus · Accepted Answer

Using the present value formula:
PV = PMT x (1 - (1+i)^-n) / i
where PV is the present value or the amount you can borrow, PMT is the yearly payment, i is the interest rate, and n is the number of years or the payment period.

Substituting the given values, we get:
PV = 3600 x (1 - (1+0.1)^-5) / 0.1
PV = 3600 x (1 - 0.620921323) / 0.1
PV = 3600 x 6.139583776
PV = $21,901.02

Therefore, the amount you can borrow today is $13,646.83 (rounded to the nearest cent), which is the present value of the payment stream over five years at 10% interest.

How Much Can You Borrow Today If You Can Make