Question

In 9 years, Rollo Company will have to repay a $100,000 loan. Assume a 6% interest rate compounded quarterly. How much money must Rollo Company pay each period to have $100,000 at the end of 9 years? (Round your answer to the nearest cent.)

a) $7,651.13
b) $11,269.05
c) $9,542.38
d) $8,714.29

Answer 1

To have $100,000 at the end of 9 years, Rollo Company must pay approximately $7,651.13 each period.

Step-by-step explanation:

To find out how much money Rollo Company must pay each period to have $100,000 at the end of 9 years, we can use the formula for compound interest:

A = P(1 + r/n)^(nt)

Where:

A = the future value of the loan,
P = the amount of the loan,
r = the annual interest rate as a decimal,
n = the number of times interest is compounded per year,
t = the number of years.

In this case, A = $100,000, P = unknown, r = 6% or 0.06, n = 4 since interest is compounded quarterly, and t = 9.

Plugging these values into the formula, we get:

$100,000 = P(1 + 0.06/4)^(4*9)

Now we can solve for P:

P = $100,000 / (1 + 0.015)^36

Using a calculator, we find that P ≈ $7,651.13