Answer to Question #178744 in Financial Math for Tayyaba

Question

 A credit union has issued a 2 years loan of $6,000. Simple interest is charged 

at a rate of 8 percent per year. The principal plus interest is to be repaid at the 

end of second year. Compute the interest for the 2 – year period. What amount 

will be repaid at the end of the second year.   

Answer 1

Interest =$\frac{PRT}{100}$

Where T is the time =2 years, P is the principal = $6000, and R is the rate at 8% (0.08)

Interest= $6000×0.08×2$

= $960$

The interest to be paid at the end of the 2-year period is $960

The amount to be repaid at the end of 2 years is given as

$FV=P(1+rn)$

Where FV is the future amount to be paid, R is the rate, and n is the number of years to be used in repaying the loan

$FV=6000(1+(0.08×2))$

$=6000(1.16)$

$=6960$

The final amount to be repaid after 2 years is $6960