Question

Another bank is also offering favorable terms, so Rahul decides to take a loan of $18,000 from this bank. He signs the loan contract at 10% compounded daily for three months. Based on a 365-day year, what is the total amount that Rahul owes the bank at the end of the loan's term? (Hint: To calculate the number of days, divide the number of months by 12 and multiply by 365.)

Answer 1

Answer:

The total amount that Rahul owes the bank at the end of the loan's term is $18,455.61

Explanation:

Hi, in order to find the total amount that Rahul will owe the bank in 3 months, we need to use the following formula (this is for a compounded daily rate).

$FutureValue=PresentValue(1+\frac{r}{365} )^{\frac{n*365}{12} }$

Where:

r = compounded rate (in our case, 10% compounded daily)

n = time in months of the loan

PresentValue = $18,000

Everything should look like this.

$FutureValue=18,000(1+\frac{0.10}{365} )^{\frac{3*365}{12} }$

$FutureValue=18,000(1+0.000273973 )^{91.25 }=18,455.61$

So, the total amount that Rahul owes the bank at the end of the loan's term is $18,455.61

Best of luck