Question

A person borrows ​$200 to be repaid in 8 years with 18​% annually compounded interest. The loan may be repaid at the end of any earlier year with no prepayment penalty. a. What amount will be due if the loan is repaid at the end of year 1​? b. What is the repayment at the end of year 4​? c. What amount is due at the end of the eighth ​year?

Answer 1

Step-by-step explanation:

Compounded interest equation:

Cf=
`Cf= Ci* (1+i)^n`

a. Year 1= 200 *(1+0,18)^1 = $236

b. Repayment at year 4 = total payment at year 8-total payment at year 4:

Total payment at year 8= 200* (1+0,18)^8 = $751,77

Total payment at year 4 = 200* (1+0,18)^4= $387,76

Repayment at year 4= $751,77 - $387,76 = $364,01

c. Amount at year 8 = 200* (1+0,18)^8 = $751,77