Question

You have a loan outstanding. It requires making eight annual payments of $ 1 comma 000 each at the end of the next eight years. Your bank has offered to restructure the loan so that instead of making the eight payments as originally​ agreed, you will make only one final payment in eight years. If the interest rate on the loan is 6 %​, what final payment will the bank require you to make so that it is indifferent to the two forms of​ payment?

Answer 1

$9,897

Explanation:

As per the data given in the question,

Given that

Number of annual payments = 8

Amount of annuity = $1,000

Interest rate of loan = 6%

Future value of annuity = Amount of annuity((1+rate)^time period - 1) ÷ rate

= $1,000((1.06)^8-1) ÷ 0.06

= $9,897

We simply applied the formula to compute the future value of annuity and the same is shown above .