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28 October, 22:11

Cromwell is acquiring some land for $1200000 in exchange for semi annual payments of $75000 at an interest rate of 6.35%. how many years will it take cromwell to pay for this purchase

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  1. 29 October, 01:52
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    The formula of the present value of annuity ordinary is

    Pv=pmt [ (1 - (1+r/k) ^ (-kn)) : (r/k) ]

    Pv present value 1200000

    PMT semiannual payment 75000

    R interest rate 0.0635

    K compounded semiannual 2

    N time?

    1200000=75000[ (1 - (1+0.0635/2) ^ (-2n)) : (0.0635/2) ]

    Solve for n

    1,200,000:75,000=[ (1 - (1+0.0635/2) ^ (-2n)) : (0.0635/2) ]

    16=[ (1 - (1+0.0635/2) ^ (-2n)) : (0.0635/2) ]

    16 * (0.0635:2) = (1 - (1+0.0635/2) ^ (-2n))

    0.508 = (1 - (1+0.0635/2) ^ (-2n))

    0.508-1 = - (1+0.0635/2) ^ (-2n)

    -0.492 = - (1+0.0635/2) ^ (-2n)

    0.492 = (1+0.0635/2) ^ (-2n)

    -2n=log (0.492) : log (1+0.0635:2)

    N=-[log (0.492) : log (1+0.0635:2) ]:2

    N=11.35 years
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