Question

This morning, you borrowed $9,500 at 8.9 percent annual interest. you are to repay the loan principal plus all of the loan interest in one lump sum four years from today. how much will you have to repay

Answer 1

The amount of lump sum that has to be repaid in 4 years is calculated using the future value formula as shown below:

FV = PV*(1+r)^n where

PV = Present value = 9,500

r = interest rate = 8.9% = 0.089

n = time in years = 4

FV = 9,500*(1+0.089)^4

FV = 9500*1.089^4

FV = $13,360.88

The amount that you have to repay in lump sum after four years = $13,360.88 (Rounded to 2 decimals)