Question

Surreal Corp. has borrowed to invest in a project. The loan calls for a payment of $17,500 every month for three years. The lender quoted Surreal a rate of 8.40 percent with monthly compounding. At what rate would you discount the payments to find the amount borrowed by Surreal Corp.? (Round to two decimal places.)

A) 8.40%
B) 8.73%
C) 8.95%
D) 8.44%

Answer 1

The rate at which the payments need to be discounted to find the amount borrowed by Surreal Corp. is 8.73%.

Step-by-step explanation:

To find the amount borrowed by Surreal Corp., we need to discount the payments at a certain rate. In this case, we are given that Surreal Corp. is making monthly payments of $17,500 for three years. The lender quoted a rate of 8.40% with monthly compounding. To find the rate at which we discount the payments, we can use the present value formula. The present value of the payments is equal to the amount borrowed. We can rearrange the formula to solve for the rate. By plugging in the values, we find that the rate is 8.73% (Option B).