Question

A low interest loan of $2000 is provided for the purchase of a low-capacity hybrid solar dryer for a period of 18 months at a simple interest rate of 5%. What is the future amount due at the end of the loan period? How long will it take the amount to double if compounded annually at 10% per year?

Answer 1

Loan amount = $2000

Calculating the Future Value of amount using Simple Interest rate:-

Future Value = Loan amount*(1+rt)

where, r = Simple Interest rate = 5%

t = no of years = 18 months/12 months = 1.5

Future Value = $2000*(1+0.05*1.5)

Future Value = $2000*1.075

Future Value = $2150

SO, the future amount due at the end of the loan period is $2150

b). Calculating the No of years it will take to double if compounded annually at 10% per year:-

As amount does double, Future value/Loan Amount = 2

Where,

r = Interest rate = 0.10

n= no of periods

Taking Log on both sides,

Log(2) = n*Log(1.10)

0.301030 = n*0.041392685

n = 7.27

So, it will take 7.27 years to double the amount

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