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scoundrel [369]
3 years ago
3

A person borrows $200that he must repay in a lump sum no more than 8 years from now. The interest rate is 8.5% annually compound

ed. The borrower can repay the loan at the end of any earlier year with no prepayment penalty.a.What amount will be due if the borrower repays the loan after 1 year
Business
1 answer:
taurus [48]3 years ago
5 0

Answer:

$217

Explanation:

The option chosen is that repayment of the loan would take place after a year, in other words, after 1 year the borrower would repay the principal plus the interest that has accrued on the loan over the one year period.

1 year interest on loan=principal*interest rate

1 year interest on loan=$200*8.5%

1 year interest on loan=$ 17

total amount due in one year=$200+$17=$217

Alternatively, we can determine the worth of the loan after one year using the future value formula as shown thus:

FV=PV*(1+r)^n

PV=loan amount=$200

r=annual interest rate=8.5%

n=number of years=1

FV=$200*(1+8.5%)^1

FV=$217

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