Answered: Given: P = $21,061.82, i = 6% per year,…

Given: P = $21,061.82, i = 6% per year, and = 5 years. %3D Find: A. A P = $21,061.82 i = 6% Years 1 2 3 4 A A A Figure 2.20 Cash flow diagram A A

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter4: Time Value Of Money

Section: Chapter Questions

Problem 1MC

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Concept explainers

Cost of Credit

The cost of credit is an extra amount that the borrower has to pay besides the loan amount. These credit charges may vary from loan to loan. The cost of credit includes interest charges, maintenance charges, and arrangement charges. Some of the costs are mandatorily collected by the lender based on the loan amount and tenure of the loan. The cost of credit is also called finance charges of the credit.

Question

You borrowed $21,061.82 to finance the educational expenses for your senior year of college. The loan will be paid off over five years. The loan carries an interest rate of 6% per year and is to be repaid in equal annual installments over the next five years. Assume that the money was borrowed at the beginning of your senior year and that the first installment will be due a year later. Compute the amount of the annual installments (Figure 2.20).

Given: P = $21,061.82, i = 6% per year, and = 5 years.
%3D
Find: A.
A P = $21,061.82
i = 6%
Years
1 2 3
4
A A A
Figure 2.20 Cash flow diagram
A A

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