Question

Suppose you borrow PKR 15,000 from ABC Bank Limited at 12 percent compound annual interest for a period of 4 years. The loan is repayable in four equal annual installments payable at the end of each year. What will be the cost of the loan?

a) PKR 15,000
b) PKR 18,560
c) PKR 21,120
d) PKR 25,000

Answer 1

The cost of the loan will be PKR 0.

Step-by-step explanation:

To calculate the cost of the loan, we need to find the total amount repaid over the 4-year period.

The loan is repayable in four equal annual installments, so each installment will be PKR 15,000 / 4 = PKR 3,750.

Now, let's calculate the total amount repaid over 4 years: PKR 3,750 x 4 = PKR 15,000.

Therefore, the cost of the loan will be the total amount repaid minus the initial loan amount: PKR 15,000 - PKR 15,000 = PKR 0. So, the correct answer is a) PKR 15,000.