Question
You are negotiating to make a 10-year loan of $35,000 to ABC Company. According to the agreement ABC Company will pay the loan in the
You are negotiating to make a 10-year loan of $35,000 to "ABC" Company. According to the agreement "ABC" Company will pay the loan in the following manner: 1. $2,500 at the end of Year 1, 2. $5,000 at the end of Year 2, 3. $7,500 at the end of Year 3, 4. $10,000 at the end of Year 4, and 5. a fixed but currently unspecified cash flow at the end of each year from Year 4 through Year 10. "ABC" Company is essentially a low risk company, so you are confident the payments will be made. Accordingly, you regard an 8% as an appropriate rate of return on a low risk but illiquid 10-year loan. Based on the above given information, answer ALL the questions that are presented on the following page. What is the value of the payment that will occur in jear 5? What is the total amount that will be paid during the loan's life? How much should the "ABC" Company pay to payoff the entire amount on July 1st, Year 8? Please answer it quickly Note:- I know this is the solution, but i want steps to solve those numbers "5994.4, 60966,9388.4" . please answer it quickly please the solution:-RATE OF RETURN= 8%= 0.08 Present Value of Total Payments discounted at 8%=$35,000 1. Present Value of $2,500 at the end of Year 1=2500/(1+0.08)=%$42314.81 2. Present Value of $5,000 at the end of Year 2=5000/(1.08^2)=$4286.69 3. Present Value of$7,500 at the end of Year 3= 7500/(1.08^3) = $5953.74 4. Present Value of$10,000 at the end of Year 4= 10000/(1.08^4) $7350.3 VALUE OF PAYMENT OCCUR IN YEAR 5 = $5994.4 TOTAL AMOUNT = $60,966 AMOUNT TO PAY TO Pay LOAN on July 1st year 8 = $ 9,388.4
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