Ken loans his grandson Rex $20,000 at 5.5 percent per year to help pay for executive chef
Question:
Ken loans his grandson Rex $20,000 at 5.5 percent per year to help pay for executive chef schooling in Florida. Rex requires 3 years of schooling before beginning to earn a salary. He agrees to pay Ken back the loan following the schedule below:
End of Year | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 |
Cash Flow | $20,000 | $0 | $0 | $0 | –$X | –$2X | –$3X | –$4X | –$5X |
a. Draw the cash flow diagram from Ken’s perspective.
b. Find the value of X such that the loan is fully repaid with the last payment.
c. What is the dollar amount of each of the 5 payments?
d. Quite by surprise, following successful on-time completion of all payments, Ken gives back to Rex all interest paid. What is the amount of Ken’s check?
Essentials of Federal Taxation 2018
ISBN: 9781260007640
9th edition
Authors: Brian Spilker, Benjamin Ayers, John Robinson, Edmund Outslay, Ronald Worsham, John Barrick, Connie Weaver