Answer:
$5974
Explanation:
Present value of a sum borrowed is equal to it's future payments discounted at r% rate of interest compounded annually for n periods.
Given: Repayment Schedule;
Year 1 $1260
Year 2 $1370
Year 3 $1530
Year 4 $1650
Year 5 $1650
Annual Rate of interest : 7.5 percent
Time period : 5 years
Money borrowed will be equal to the present value of future payments discounted at 7.5% per annum.
PV = [tex]\frac{1260}{(1\ +\ .075)^{1} } \ +\ \frac{1370}{(1\ +\ .075)^{2} } \ +\ \frac{1530}{(1\ +\ .075)^{3} } \ +\ \frac{1650}{(1\ +\ .075)^{4} } \ +\ \frac{1650}{(1\ +\ .075)^{5} }[/tex]
Present Value = $5974 = Money borrowed
