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ndinizvangu · Jan 26, 2010, 06:50 AM

Mr Patel intends to start a dry cleaning business and wishes to borrow money for this purpos.He feels he will no be able to pay anything in the first three years but thereafter he is prepared to pay $4000.00 per year for five years.The bank agrees to advancxe him money at 18% interest per annum.How much will they be willing to advance him now under these conditions?

ebaines · Jan 26, 2010, 08:48 AM

Find the present value of a $4000 payment to be made in 4 years at 18% interest, plus payments in 5 years, 6 years, 7 years, and 8 years. The PV for any one of these paymest is calculated from:

$<br /> PV = \frac {FV} {(1+i)^N}<br />$

where i is the interest rate of 0.18 and N is number of years. Post back with the answer and someone here will be glad to check it for you.

morgaine300 · Jan 27, 2010, 09:57 PM

If you didn't already read my post, ignore this. If you did already read it, I figured out partially what you were doing, but still don't think it'll work. But I need to think about that a bit before I comment. I still think it has to be done in two parts.

morgaine300 · Jan 27, 2010, 10:24 PM

OK, I see why that works (I had to draw a picture), but it just seems like the LOOOONNNGGG way about it. I can do that in two equations so I don't see wasting time doing five. What if the payments were being made over 20 or 30 years, or worse, over say 10 years monthly? I absolutely would not want to waste time doing that equation that many times when I can still do it in two. (Or one, if that initial 3 years didn't exist.)