Question

Jasmine would like to join her friends on their trip to Bermuda for spring break, but finds herself

$1,500 short. One of Jasmine’s friends, Vanessa, offers to loan her the money under the following

terms: she must pay back the borrowed amount plus 7% interest in one lump-sum payment at the end

of the year. If Jasmine accepts the offer, then how much will she owe Vanessa?

Answer 1

Solution:

The formula for calculating the total amount payable on repayment of loan ( i.e., Principal amount of loan + Interest ) is

FV = P * ( 1 + r ) t

Where

FV = Total amount repayable on the loan ( Principal + Interest ) ; P = Amount of loan ;  

r = rate of interest   ; t = Time in years ;

As per the information given in the question we have

P = $ 1,500   ;   r = 7% = 0.07 ;   t = 1 Year ; FV = $ To find    ;

Applying the above values in the formula we have lumpsum amount payment at the end of the year as

= $ 1,500 * ( 1 + 0.07 ) 1

= $ 1,500 * ( 1.07 ) 1

= $ 1,500 * 1.07

= $ 1,605

Thus If Jasmine accepts the offer, the amount ( i.e., Loan amount + Interest ) that she will owe Vanessa = $ 1,605