Question

(show your steps/Formula for the problem)

b) Your best friend agrees to loan $10,000 at a 5% interest rate. What is the yearly payment you need to make to pay them off in 10 years?

Answer 1

Here in this question it is not mentioned that whether the interest calculation is done by compounding or simple interest.

For simple interest

Amount = P(1+rt)

P= principle amount

r = rate of interest

t = time period

Here

P = $10000

r = 5%

t = 10 years

So

Amount = 10000(1+.05*10)

= $15000

So the total amount to pay in 10 years is 15000.

Then for 1 year I have to pay

15000/10

= $1500

If compounding interest then

Amount = P (1 + r/100)¹⁰

  = 10000( 1+ 0.05)¹⁰

  = $16288.94

I have to pay $16288.94 in 10 years

So for 1 year I have to pay

$16288.94/10

= $1628.89

ThankYou......