Ken loans his grandson Rex $20,000 at 5.5 percent per year to help pay for executive chef schooling in Florida. Rex requires 3 years of schooling before beginning to earn a salary. He agrees to pay Ken back the loan following the schedule below:

a. Draw the cash flow diagram from Ken’s perspective.

b. Find the value of X such that the loan is fully repaid with the last payment.

c. What is the dollar amount of each of the 5 payments?

d. Quite by surprise, following successful on-time completion of all payments, Ken gives back to Rex all interest paid. What is the amount of Ken’s check?

Transcribed Image Text:

End of Year Cash Flow 0 1 2 3 4 5 6 7 8 $20,000 $0 $0 $0 -$X -$2X -$3X -$4X -$5X