A company borrows $10,000 and issues a 5-year,6% installment note with interest payable annually.The factor for the present value of an annuity at 6% for 5 years is 4.2124.The factor for the present value of a single sum at 6% for 5 years is 0.7473.The present value of the interest payments is $2,527.44.

Installment Note

A debt that requires regular payments, or installments, of principal and interest until it is paid off.

Present Value

The present value of a future amount of money or series of cash flows, discounted at a certain rate of return.

Annuity

A financial product that pays out a fixed stream of payments to an individual, typically used as part of retirement strategy.