Question

Ten years ago you sold some land to a neighbor for $100,000 under an agreement for sale which stated that the payments were to be equal installments of principal and interest made on an annual basis over 20 years at an interest rate of 5% per year. Ten payments have been made and now the neighbor wants to pay off the balance owing with a bank loan at 4%. What is the minimum you should be willing to accept assuming you can get 5% on an alternative investment right now?

Answer 1

Calculating Annual Payment on Loan,

Using TVM Calculation,

PMT = [PV = 100,000, FV = 0, N = 20, I = 0.05]

PMT = $8,024.26

Calculating Value of Loan left after 10 years,

Using TVM Calculation,

FV = [PV = 100,000, PMT = -8,024.26, N = 10, I = 0.05]

FV = $61,961.18