Question

Sparky, Inc., performs services for ABC Company on January 1, 2018 and accepts a $300,000, 6%, six-year note from their client. The note requires ABC to make semi-annual loan payments of principal and interest each June 30th and December 31stwith the first payment to be received on June 30, 2018. What is the amount of each payment?

Note:
PVOA(3%, 12n) = 9.954 PVOA(6%, 12n) = 8.384
PV$1 (3%, 12n) = 0.701 PV$1 (6%, 12n) = 0.497

A. $25,750

B. $29,761

C. $30,139

D. $25,500

Answer 1

The amount of each semi-annual payment that ABC Company must make to Sparky, Inc. on a $300,000 note at 6% interest over six years is approximately $30,139.

Step-by-step explanation:

To determine the amount of each payment for the note held by Sparky, Inc., we must first recognize that this is a case of an ordinary annuity, where payments are made at the end of each period. Given the 6% annual interest rate and semi-annual payments, the effective interest rate per period is 3% (half of the annual rate).

Using the given present value of an annuity (PVOA) factor for 3% and 12 periods (6 years semi-annually), which is 9.954, we can set up the equation:

PV = Payment per period × PVOA factor

$300,000 = Payment per period × 9.954

To find the payment per period, divide the principal by the PVOA factor:

Payment per period = $300,000 / 9.954 = $30,139.28

Therefore, each payment is approximately $30,139.