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Homework answers / question archive / Gavin Collins plans to borrow $8,000 for five years
Gavin Collins plans to borrow $8,000 for five years. The loan will be repaid with a single payment after five years, and the interest on the loan will be computed using the simple interest method at an annual rate of 6 percent.
1. How much will Gavin have to pay in five years?
2. How much will he have to pay at maturity if he's required to make annual interest payments at the end of each year?
1) Computation of Amount Gavin have to pay in 5 Years:
Amount = Principal + Simple Interest
Here,
Principal = $8,000
Simple Interest = Principal*Rate*Time = $8,000*6%*5 years = $2,400
Amount = $8,000+$2,400 = $10,400
So, Amount that Gavin have to pay in 5 Years is $10,400.
2) Computation of Amount that he will have to pay at maturity if he's required to make annual interest payments at the end of each year:
Amount = Principal + Interest for that year
= $8,000 + $8,000*5%*1
= $8,000 + $400
Amount = $8,400
