Canliss Mining Company borrowed money from a local bank. The note the company si
ID: 2704439 • Letter: C
Question
Canliss Mining Company borrowed money from a local bank. The note the company signed requires five annual installment payments of $12,000 beginning three years from today. The interest rate on the note is 8%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
What amount did Canliss borrow?
Canliss Mining Company borrowed money from a local bank. The note the company signed requires five annual installment payments of $12,000 beginning three years from today. The interest rate on the note is 8%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
What amount did Canliss borrow?Explanation / Answer
step 1) Value of money borrowed 3years from now
annual installment = 12,000$
n=5years, i=8%
Value of money borrowed 3years from now is
= (annual insatllment)*{PVA(n=5years, i=8%)}
= (12000*(4.31213)
= 47912.52$
step 2) money borrowed = present value of amount calculated above i.e present value of (Value of )money borrowed 3years from now
money borowed= 47912.52*{PV(n=2years, i=8%)}
= 47912.52*0.85733
= 41077.26337$