Question

Theresa wishes to determine how long it will take to repay with initial proceeds of $250 000 where end of year installment payments of $20 000 are required. If Theresa can borrow at an interest rate of 12% , how long will it take for her to repay the loan fully.

Answer 1

To fully repay the loan of $250,000 with end of year installment payments of $20,000 and an interest rate of 12%, it will take Theresa 14 years.

Step-by-step explanation:

To determine how long it will take for Theresa to fully repay the loan of $250,000 with end of year installment payments of $20,000 and an interest rate of 12%, we need to calculate the number of years it will take. Here's how:

1. First, we need to find out how much Theresa needs to repay, which is the original loan amount plus the interest. The interest can be calculated using the formula: Interest = Loan Amount x Interest Rate
2. In this case, the interest is: Interest = $250,000 x 0.12 = $30,000
3. So, the total amount Theresa needs to repay is: Total Amount = Loan Amount + Interest = $250,000 + $30,000 = $280,000
4. Since Theresa makes end of year installment payments of $20,000, we can divide the Total Amount by the payment amount to find the number of payments needed: Number of Payments = Total Amount / Payment Amount = $280,000 / $20,000 = 14

Therefore, it will take Theresa 14 years to fully repay the loan.