Question

Rahul decides to take a loan of $12,000 from a bank. He signs the loan contract at 4.8% compounded monthly for 3 years. What is the total amount that Rahul owes the bank at the end of the loan

Answer 1

The total amount is computed as shown below:

Future value is computed as follows:

= Present value (1 + r)ⁿ

r is computed as follows:

= 4.8% / 12 (Since the interest is compounded monthly, hence divided by 12)

= 0.4% or 0.004

n is computed as follows:

= 3 x 12 months (Since the interest is compounded monthly, hence multiplied by 12)

= 36

So, the total amount will be as follows:

= $ 12,000 (1 + 0.004)³⁶

= $ 13,854.63 Approximately

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