You have a loan outstanding requires making four annual payments of $5,000 each at the end on leu of making one large payment at the end of the loan's tem in four years the interest rate on t two forms of payment The final paym Rand

You have a loan outstanding requires making four annual payments of $5,000 each at the end on leu of making one large payment at the end of the loan's tem in four years the interest rate on t two forms of payment The final paym Rand

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 15P

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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

Give typing answer with explanation and conclusion

You have a loan outstanding. It requires making four annual payments of $5,000 each at the end of the next four years Your bank has offered to allow you to skip making the next three payments in
Kleu of making one large payment at the end of the loan's term in four years. If the interest rate on the loan is 5%, what final payment will the bank require you to make so that it is indiferent to the
two forms of payment?
The final payment the bank will require you to make is $(Round to the nearest dollar)

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