Question

Paisley Motors helped out a vendor by lending them money to upgrade their supply chain. Paisley is willing to give the vendor some time before repaying the loan. The vendor will start making payments of $37,072 at the end of year 6, decreasing the payment amount by 16% each subsequent year. The vendor will make a total of 7 payments (one at the end of each year). The company is thinking of selling the loan to a third party and needs to know how much the future loan payments are worth today. Use a nominal annual interest rate of 11%, compounded monthly to make the calculation. Enter your answer as follows: 12345 Round your answer. Do not use a dollar sign ("$"), any commas ("") or a decimal point (":")

Answer 1

rate compounded annually=(1+11%/12)^12-1=11.572%

Present worth of the payments=37072/(1+r)^6*(1-(0.84/(1+r))^7)/(1-(0.84/(1+r)))=37072/(1+11.572%)^6*(1-(0.84/(1+11.572%))^7)/(1-(0.84/(1+11.572%)))=67105.36