SOLUTION: Assuming an interest rate of 8% compounded annually. Answer the following question; (a) how much money can be loaded now if $6,000 is to be repaid at the end of five years? (b)

Question 1090115: Assuming an interest rate of 8% compounded annually. Answer the following question;
(a) how much money can be loaded now if $6,000 is to be repaid at the end of five years?
(b) how much money will be required in four years in order to repay a $15,000 loan borrowed now?

Answer by EMStelley(208) (Show Source): You can put this solution on YOUR website!
The compound interest formula is:

Where A is the final amount, P is the principal amount, r is the rate in decimal form, n is the number of times per year the interest is compounded, and t is the number of years.
So in part a), we have r = 0.08, n = 1, t = 5, and we want A to be 6000 since that is the desired amount at the end of the 5 years. So we need to solve for P.

Note that we round to two decimal places since this is money. So if you want $6,000 at the end of 5 years, you need to start with $4,083.50.
For part b), the $15,000 is our P, our initial amount. And t is 4. So we are solving for A.

So at the end of 4 years, you will have to repay $20,407.33.
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