Question

You get a student loan from the New Mexico Educational Assistance Foundation to pay for your educational expenses this year. Find the interest on the loan if you borrowed $2,000 at 8.5% for 3 year.

Answer 1

$554.58

Explanation:

The interest on the loan can be computed by first determining the future value of the loan in three years as follows:

FV=PV*(1+r)^n

PV is the amount of the loan which is $2,000

r is the interest rate which is 8.5%

n is the number of years which is 3 years

FV=$2000*(1+8.5%)^3=$ 2,554.58

Since the value of the loan in three years is $ 2,554.58 ,the interest on the loan is the difference between the future value and the present value

interest=$ 2,554.58-$2,000.00=$554.58