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vlada-n [284]
4 years ago
12

A firm has borrowed $5,000,000 for 3 years at 10% interest, compounded annually. It makes no payments until the loan is due, and

then pays the loan off as a lump sum. What is the payoff amount at the end of year 3?
Business
1 answer:
algol [13]4 years ago
4 0

Answer:

$6,655,000

Explanation:

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

wherein, A= Amount

              P= Principal

              R= Rate of interest per annum

              n = term to maturity

Pay off amount at the end of year 3 = $5,000,000(1\ +\ .10)^{3}

Amount = $5,000,000 × 1.331 =  $ 6,655,000

Amount due of a borrowing is equal to the money borrowed initially compounded at a rate of interest for a known period.

Above. rate of interest is 10%, since the money has been repaid only upon due date, three year compounding of the said sum at 10% per annum rate of interest yields the payoff amount which is $6,655,000

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