Q:

A company purchased equipment and signed a 7-year installment loan at 9% annual interest. The annual payments equal $9,000. The present value of an annuity factor for 7 years at 9% is 5.0330. The present value of a single sum factor for 7 years at 9% is 0.5470. The present value of the loan is: A. $9,000B. $4,923C. $16,453D. $63,000E. $45,297

Accepted Solution

A:
Here we apply the present value of annuity formula. This formula is given by:
P=A[(1-1/()1+r)^n]/r
where:
P=present value
A=future value
r=rate
n=number of terms
NOTE: 
[(1-1/()1+r)^n]/r
is called the present value of annuity factor, this has been given as 0.5033.
Thus our formula can be written as:
P=5.033A
Thus to evaluate the present value we plug in the values in our formula:
hence:
P=5.033(9000)
P=45297