Which of the following must be known to compute the interest rate paid from financing an asset purchase with an annuity?
A)Fair value of the asset purchased,number and dollar amount of the annuity payments.
B)Present value of the annuity,dollar amount and timing of the annuity payments.
C)Fair value of the asset and timing of the annuity payments.
D)Number of annuity payments and future value of the annuity.

Question

Quizplus · Accepted Answer

To compute the interest rate paid from financing an asset purchase with an annuity, we need to know the present value of the annuity (which takes into account the dollar amount and timing of the payments). Knowing the fair value of the asset alone (option C) or the number and future value of the annuity payments (option D) is not enough to calculate the interest rate. Option A includes the fair value of the asset, but it still does not include the present value of the annuity. Option B is the only choice that includes all the necessary information.

Which of the Following Must Be Known to Compute the Interest