Homework Answers
| Borrowed amount | $ 202,772.00 | |
| Interest rate | 8.00% | |
| No of semiannual payments | 10 | |
| Semiannual interest rate | 4.00% | |
| Present value (PV) of semi-annual payments should be equal to the borrowed amount | ||
| PV of annuity | ||
| P = PMT x (((1-(1 + r) ^- n)) / r) | ||
| Where: | ||
| P = the present value of an annuity stream | $ 202,772.00 | |
| PMT = the dollar amount of each annuity payment | To be calculated | |
| r = the effective interest rate (also known as the discount rate) | 4.00% | |
| n = the number of periods in which payments will be made | 10 | |
| PV of semi-annual payments = | PMT x (((1-(1 + r) ^- n)) / r) | |
| 202772= | PMT * (((1-(1 + 4%) ^- 10)) / 4%) | |
| 202772= | PMT * 8.11089577935504 | |
| Semi-annual payments= | 202772/8.11089577935504 | |
| Semi-annual payments= | $ 25,000 | |
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