Denver Company needs a loan. In an agreement worked with its banker, Denver assigns its royalty income of $4880 per month for the next 3 years with the first payment due at the end of the first month. If the bank charges interest at the rate of 9% a year compounded monthly, what is the amount of the loan negotiated between the parties?
2006-10-20 22:36:49 · 2 answers · asked by Nina Karina 1 in Science & Mathematics ➔ Mathematics
-You need to find the present value of an annuity, hence:
3 years = 36 payments which is "n"
R = $4,800.00
r = 9% / year compounded monthly.
m = 12
Thus,
i = r / m
i = 0.09 / 12
i = 0.0075
-Calculate the present value of an annuity
P = 4800 [ 1 - ( 1.0075 ) ^ -36 ] / 0.0075
P ≈ 150,944.67
So, the amount negociated with the banker is $150,944.67
2006-10-20 22:46:45 · answer #1 · answered by c00kies 5 · 0⤊ 0⤋
If I understand your question correctly, I think this is what you want.
There are a total of 36 months in three years, so 36 payments.
The company has to pay back the price of the royalties for each month. Any other money paid back will be interest charged (profit).
So money borrow = Royalty x No. of payments.
So money borrow = $4880 x 36
So money borrow = $175,680
2006-10-21 05:56:20 · answer #2 · answered by Brenmore 5 · 0⤊ 0⤋