Question

A company must repay the bank $10,000 cash in 3 years for a loan it entered into. The loan is at 8% interest compounded annually. The present value factor for 3 years at 8% is 0.7938. The present value of the loan is:

1) $12,400
2) $7,938
3) $9,200
4) $10,000

Answer 1

The present value of a $10,000 loan due in 3 years at 8% interest compounded annually, using the given present value factor of 0.7938, is $7,938.

Step-by-step explanation:

The question asks for the present value of a $10,000 loan that must be repaid in 3 years with an 8% annual interest rate, using a present value factor. To calculate the present value of the loan, you multiply the future value of the loan by the present value factor for 3 years at 8%, which is 0.7938. This calculation leads to finding the present value of the loan as $10,000 x 0.7938 = $7,938.