Question

2. To help pay your college expenses, you borrow P7000 and agree to repay the loan at the end of 5

years at 8% interest, compounded quarterly.

(a) What is the maturity value of the loan?

(b) How much interest are you paying on the loan?

Answer 1

(a)

$$A=P(1+r/n)^{nt}$$

$$=7000(1+0.08/4)^{4(5)}=P10401.63$$

(b)

$$I=A-P=10401.63-7000$$

$$=P3401.63$$