Question

Chase Boyd plans to borrow $14,000 for 4 years. The loan will be repaid with a single payment after four years, and the interest on the loan will be computed using the simple interest method at an annual rate of 8 percent.

1.)How much will Chase have to pay in four years?

2.)How much will he have to pay at maturity if he's required to make annual interest payments at the end of each year?

Answer 1

- Borrowed amount for 4 years = $14,000

Simple Annual Interest rate = 8%

a). calculating the single accumulated value at the end of year 4:-

Repayment amount = Loan value*[1+(r*t)]

where.. r = Simple Annual Interest rate = 8%

t = no of years = 4

Repayment amount = $14,000*[1+ (0.08*4)]

Repayment amount = $14,000*[1+0.32]

Repayment amount = $18,480

So, amount Chase have to pay in four years is $18480

b). If Chase pay Annual Interest apyment at the end of each year, at maturity he will pay back the loan amount including the last year Interest Payment.

Maturity Payment = Loan value*[1+r]

where.. r = Simple Annual Interest rate = 8%

Maturity Payment = $14,000*(1+0.08)

Maturity Payment = $15120

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