Question

Compute the future value on a loan of $900 at 10 % interest rate for 15 compounded quarterly

Answer 1

To compute the future value of money loaned today we shall use the formula given below;

$\begin{gathered} FV=PV(1+\frac{r}{n})^{nt} \\ \text{Where;} \\ PV=\text{present value of loan} \\ r=\text{rate of interest } \\ t=\text{time period (in years)} \\ n=Number\text{ of times compounding is done per period} \end{gathered}$

The future value of the loan is now calculated as follows;

$\begin{gathered} FV=900(1+\frac{0.1}{4})^{15\times4} \\ FV=900(1+0.025)^{60} \\ FV=900(1.025)^{60} \\ FV=900(4.399789748815047) \\ FV=3959.81077\ldots \\ FV\approx3959.81\text{ (rounded to the nearest hundredth)} \end{gathered}$

ANSWER

The future value of this loan therefore is $3,959.81