Calculate the present value of a loan with $25,000 due after 12 years at 6% if the interest was compounded monthly. (the present value is the same as the principal amount of the loan). Discuss how the present value of a compounded loan changes as you increase time?

a) The present value of the loan is $12190.66

b) The present value of the loan decreases as the time increases

Step-by-step explanation:

Step 1 :

Given

Amount after 12 years = $25000

number of years = 12

interest rate = 6% compounded monthly

Step 2 :

The amount is computed using the formula

A = P (

Where P = Principal amount

r = interest rate

n = number of terms

Here,

A = 25000

r = 6% × 12 (as it is compounded monthly)

n = 6 × 12 (as it is compounded monthly)

So we have ,

25000 = P  

=> P(2.05) = 25000

=> P = $12190.66

Step 3 :

The present value of the loan decreases as the time increases

Step 4 :

Answer :

The loan's present value is $12190.66

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step-by-step explanation:

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