Plz explain I will rate 4 Using the Single Payment Compound

Plz explain. I will rate.

4. Using the Single Payment Compound Interest Equation, show that the Constant Principal Payment plan is equivalent to the $1000 borrowed. Interest is 6%, 10 years.

Solution

Interest rate = 6%

Time = 10 years

Future value or the Principle value = $1000

Now for single payment compound interest

Present Value = Future Value / (1+rate)^time

This means that, for our example,

Present Value = 1000 / (1.06)^10

Present Value = $558.39

This means that if you take a loan with Principal value of $1000 @ 6% for 10 years, you will recieve $ 558.29 today for that.

In other words, if you take $558.29 for 10 years @ 6%, you have to pay at maturity $1000

Moulding the above formula

Future Value = Present Value * (1+rate)^time

Future value = 558.29 * (1.06)^10

Future Value = $1000

I hope it will clear your doubt.