Question

GreenTree Financing lent an engineering company $100,000 to retrofit an environmentally unfriendly building. The loan is for 3 years at 10% per year simple interest. How much money will the firm repay at the end of 3 years? Provide the correct cash flow, with the correct directions.

Answer 1

Simple interest equation is:

A = P x (1 + rt)

A = Total accrual amount = (principal + interest)

P = Principal Amount = $ 100,000

r = Rate of interest = 10 % or 0.1 p.a.

t = Time period = 3 years

A = $ 100,000 x (1 + 0.1 x 3)

    = $ 100,000 x (1 + 0.3)

    = $ 100,000 x 1.3 = $ 130,000