Present Principle Of A Loan

[Duran021]

[FONT=&quot]If you decide to buy a house, you have to make a loan payment of $10,000 per year for nine years. What is the present principle of this loan? Assume the interest rate is 10%.[/FONT]
Yr: 0 1 2 3 4 5 6 7 8 9
_|____|____|____|____|____|____|_____|____|____|__
10G 10G 10G ..........................................10G = 90,000

I really do not understand what they mean by present principle, I am assuming they mean Present value Annuity (PVA), where (i) is the interest rate.

So Is it set up like PVA= 10,000 Periodic Payment (CF) ( 1/(1+i)^1 +1/(1+i)^2 + 1/(1+i)^3+...+1/(1+i)^9)

However I do not think this is right..

Can anyone explain in this in really simple terms, I really struggle with finance so I need someone to explain it step by step really simply. Sorry for the trouble.

 

[tkhunny]

I would go with what you have, given a propensity to use the simplest, and most regular assumptions where the problem statement is a little vague.

1) When is "the present"? Is it the beginning of the loan? Some other time? The problem statement should specify clearly.
2) Are the $10,000 payments ALL the payments? The problem statement should specify clearly.
3) Why do you believe your impression to be incorrect?
4) Who told you that you struggle with finance? You ARE supposed to be learning. Did you really expect it ALWAYS to be trivial?