Question

Chancellot Linited sells an asset wits a $13 milion fain value to Sophie Incorporated Sophie aglees to make sox equal payments, each to be paid one year apart commencing on the date of saie. Eoch payment includes peincipal and 6% annuat interest. What is the amount of each annual payment? Note: Use tobles, Ekcel, or o financiol coleulator. Round your final onswer to the nearest whole dollor

Answer 1

To find the amount of each annual payment made by Sophie Incorporated, you can use the formula for the present value of an annuity. In this case, the present value is $13 million, the interest rate is 6%, and the number of periods is 6 years (since there are 6 equal annual payments). Using the formula, each annual payment is approximately $2,305,783.

Step-by-step explanation:

To find the amount of each annual payment made by Sophie Incorporated, we can use the formula for the present value of an annuity. In this case, the present value is $13 million, the interest rate is 6%, and the number of periods is 6 years (since there are 6 equal annual payments).

The formula for the present value of an annuity is: PV = PMT x ((1 - (1 + r)^-n) / r), where PV is the present value, PMT is the payment each period, r is the interest rate per period, and n is the number of periods.

Substituting the given values into the formula, we have: $13 million = PMT x ((1 - (1 + 0.06)^-6) / 0.06). Solving for PMT, we find that each annual payment made by Sophie Incorporated is approximately $2,305,783.