Question

Make calculations for a 5-year loan of $20,000 with an annual interest rate of 6% compounded monthly. Calculate the balance owed if the loan had to be paid in full at the end of the 5-year period, and no monthly payments were required.

Answer 1

Answer: $28,383.68.

Explanation:

The first step is to determine the number of monthly payments over the 5-year period, which is 5 years x 12 months/year = 60 months.

Next, we can use the formula for the future value of an annuity, which is:

FV = P * ((1 + r/n)^(n*t) - 1) / (r/n)

where:

FV is the future value of the loan (the amount owed at the end of the 5-year period)

P is the initial principal amount ($20,000 in this case)

r is the annual interest rate (6%)

n is the number of compounding periods per year (12 for monthly compounding)

t is the total number of years (5)

Plugging in these values, we get:

FV = $20,000 * ((1 + 0.06/12)^(12*5) - 1) / (0.06/12)

FV = $28,383.68

Therefore, the balance owed at the end of the 5-year period would be $28,383.68.