Chancellor Ltd

Multiple Choice

Chancellor Ltd. sells an asset with a $1 million fair value to Sophie Inc. Sophie agrees to make 6 equal payments, one year apart, commencing on the date of sale. The payments include principal and 6% annual interest. Compute the annual payments.

A) $166,651.
B) $135,252.
C) $203,351.
D) $191,852.We compute the annual payments in the present value of an annuity due formula, where the present value is $1 million, n=6 and i=6%.The discount factor (from table 6) is 5.21236.Dividing $1 million by this factor gives payments of $191,852.