Question

2. You have a loan outstanding. It requires making three annual payments of $1000 each at the end of the next three years. Your bank has offered to allow you to skip making the next two payments in lieu of making one large payment at the end of the loan’s term in three years. If the interest rate on the loan is 5%, what final payment will the bank re

Answer 1

Answer:

$1,157.63

Explanation:

We must determine the future value of your loan. I'm assuming that the bank charges compound interest.

future value = present value x (1 + interest rate)ⁿ

• present value = $1,000
• interest rate = 5%
• n = time = 3 years

future value = $1,000 x (1 + 5%)³ = $1,000 x 1.157625 = $1,157.625 ≈ $1,157.63