Question

Lowlife Company defaulted on a $190,000 loan that was due on December 31, 2021. The bank has agreed to allow Lowlife to repay the $190,000 by making a series of equal annual payments beginning on December 31, 2022. (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.)

Required:

1. Calculate the required annual payment if the bank’s interest rate is 10% and four payments are to be made.
2. Calculate the required annual payment if the bank’s interest rate is 8% and five payments are to be made.
3. If the bank’s interest rate is 10%, how many annual payments of $27,885 would be required to repay the debt?
4. If three payments of $69,117 are to be made, what interest rate is the bank charging Lowlife?
  

	Table or calculator function: Present Value: n = i = Annual Installment:

required annual payment if the bank’s interest rate is 8% and five payments are to be made. (Round your final answers to nearest whole dollar amount.)

	Table or calculator function: Present Value: n = i = Annual Installment:

If the bank’s interest rate is 10%, how many annual payments of $27,885 would be required to repay the debt? (Round the value of "n" to the nearest whole number.)

	Present Value: n = i = Annual Installment:

If three payments of $69,117 are to be made, what interest rate is the bank charging Lowlife? (Round percentage answer to one decimal place. Round the interest rate to the nearest whole percentage.)

	Present Value: n = i = Annuity Payment

Answer 1

Answer to Requirement 1: Table or Calculator Function: Present Value n = PVA of $1 $ 190,000 4 10% $ 59,937 Annual Installment: Annual Installment = $190,000 / PVA of $1 (10%, 4) Annual Installment = $190,000/3.170 Annual Installment = $59,937 Answer to Requirement 2: Table or Calculator Function: Present Value n = PVA of $1 $ 190,000 5 8% $ 47,583 i = Annual Installment: Annual Installment = $190,000 / PVA of $1 (8%, 5) Annual Installment = $190,000/ 3.993 Annual Installment = $47,583

Answer to Requirement 3: Present Value $ 190,000 12 10% 27,885 i = Annual Installment: $ PVA of $1 (10%, n) = Present Value / Annual Installment PVA of $1 (10%, n) = $190,000 / $27,885 PVA of $1 (10%, n) = 6.814 Using table values, n = 12 Answer to Requirement 4: Present Value $ n = 190,000 3 4.5% 69,117 Annual Installment: $ PVA of $1 (%, 3) = Present Value / Annual Installment PVA of $1 (i%, 3) = $190,000 / $69,117 PVA of $1 (i%, 3) = 2.749 Using table values, n = 4.5%