Question

Assume annual payments of $5,309 for 7 years and an interest rate of 7.4% per year. What initial principal (present value) will this repay?

Answer 1

$28,217

Step-by-step explanation:

We discount the future cashflows by the effective interest rate to determine the Present Value amount.

Payments of fixed amounts over a period of time are known as annuities, hence we want to find the Present Value of an Annuity investment.

Here I will use a financial calculator :

PMT = $5,309

P/yr = 1

r = 7.4%

n = 7

FV = $0

PV = ?

Conclusion

The principle (PV) will be $28,217