Question

Suppose that you are obtaining a personal loan from your uncle in the amount of $30,000 (now) to be repaid in three years to cover some of your college expenses. If your uncle usually earns 9% interest (annually) on his money, which is invested in various sources, what minimum lump-sum payment three years from now would make your uncle satisfied with his investment?

Answer 1

Answer:

$38,851 approx

Explanation:

As per the information provided in the question, the minimum annual rate of return would be at-least equal to the usual rate of return the investor (here uncle) earns. Here it is 9% per annum.

Anything earned below this rate of return will not satisfy the investor since this represents the minimum required rate of return.

A= $P(1 + r)^{n}$

Where A= Amount

           P= Principal

           r= Annual Rate Of Interest

           n= period of loan

Therefore, A= $30,000(1 + .09)^{3}$

                  A= $38,850.87 or $38,851 approx.