Question

On the day you enter college you borrow $12,000 from your local bank. The terms of the loan include an interest rate of 5.45%. The terms stipulate that the principle is due in full one year after you graduate. Interest is to be paid annually at the end of each year. Assume that you complete college in four years. How much will you pay the bank one year after you graduate?

Question 12 options:

$12,000.00

$12,654.00

$2,806.27

$3,419.59

$15,646.39

Answer 1

Basically in this wuestion, we are told clearly that the interest is paid each year but the principal is paid after 1 yeat of graduation. Therefore annual interest payments are made so at the end of each year, after payment of interest 12000 is due.

So at the time of graduation the amount due after payment of annual interest was 12000

For one year interest will accrue on it and after 1 year of graduation, the interest and the principal amount will be paid back. So the amount payable is calculated as follows:

So after 1 year of graduation, 12654 needs to be paid off and the correct option is option 2