Question

James wants to make a loan in the amount of $ 15,000. They offer you an 11% annual interest rate, compounded annually to pay in 4 years. Prepare a loan repayment plan.

Answer 1

Solution:

Loan Amount Taken =$15,000

Loan interest rate = 11% compounded annually

Time period with in loan repyment = 4 years

After 4 year he can repay loan amount as follows;

Future value of present amount given = Present Value * ( 1+ r) t

where r=interest rate =11%, t= time period= 4 years.

= $15,000 * ( 1+0.11)4

= $15,000 * (1.11)*(1.11)*(1.11)*(1.11) = $15,000 * 1.51807041 = $ 22,771.05615 = $ 22,771.06

So he can repay the loan amount of principal $15,000 with interest of $7771.06 with 11% compounded annual interest.