Question

In order to build a new warehouse facility, the regional distributor for Valco Multi-position Valves borrowed $1.6 million at 10% per year interest. If the company repaid the loan in a lump sum amount after 2 years, what was (a) the amount of the payment, and (b) the amount of interest

Answer 1

It will return 1,936,000 dollars

from which 336,000 will be interest

Step-by-step explanation:

We solve using the future value of a lump sum:

`Principal \: (1+ r)^(time) = Future \: Value`

Principal 1,600,000.00

time 2.00

rate 0.10000

`1600000 \: (1+ 0.1)^(2) = Amount`

Amount 1,936,000.00

We calculate interst by the different os the amount borrow and the amount returned:

1,936,000 - 1,600,000 = 336,000