Homework Answers
First we have to calculate the future value of loan at the end
of Year 3.
Future value = $300 * Future value annuity factor 7% 3 years
= $300 * 3.2149
= $964.47
Now we calculate the Present value of loan payments in Year 4,5,6 and 7 and put it equal to the future value calculated above to find out the payment amount at the end of Year 4.
Present value of loan payments = X / (1 + 0.07) + ($300 *
Present value annuity factor 7% 3 years) / (1 + 0.07)
$964.47 = X / (1.07) + ($300 * 2.62432) / (1.07)
$964.47 = X / (1.07) + ($787.30) / (1.07)
$964.47 = X / (1.07) + $735.79
$964.47 - $735.79 = X / (1.07)
$228.68 = X / (1.07)
$228.68 * 1.07 = X
X = $244.69
Hence the payment at the end of Year 4 is $244.69
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