Answer:
d) Amount to be borrowed = $13,286.65
Explanation:
The amount to be borrowed is equal to the present value of the payment annuity of $300 per month for 4 years at an interest rate of 4%.
The monthly $300 payment represents an installment which will cover both the principal and interest that will accrue over the life of the loan. This series of annual payment is called an annuity.
The present value of annuity is computed using this formula:
PV of Annuity = installment × (1- (1 + r)^(-n))/r
equal installment- 300, r= 4%/12 = 0.33% , n= 4 × 12 = 18
The Present value is computed as follows:
PV = 300 × (1- (1.0033)^(-4× 12))/0.0033)
= 300 × 44.28
= $13,286.65
