Question

Suppose that you are obtaining a personal loan from your uncle in the amount of $20,000 to be repaid in two years to cover some of your college expenses. You uncle is used to earning 8% interest annually on his investments.What minimum lump-sum payment two years from now would make your uncle happy? a. $23,200 b. $23,328 c. $23,680 d. $23,975

Answer 1

Option (b) is correct.

Step-by-step explanation:

Amount of loan taken from uncle = $20,000

Uncle is used to earning Interest rate = 8%

The minimum lump-sum payment two years from now would make your uncle happy is as follows:

= Amount of Loan × (1 + Interest rate)^(Time period)

= $20,000 × (1 + 0.08)^(2)

= $20,000 × (1.08)^2

= $20,000 × 1.1664

= $23,328