Suppose that you are obtaining a personal loan from your uncle in the amount of $20,000 (now) tobe repaid in two years to cover some of your college expenses. If your uncle usually earns minimum8% profit (annually) on his money, which is invested in various sources. question: If you pay every six months, how much should you pay every six months?

Economics, Business

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EXPERT ANSWER

If uncle would have not loaned me, he would have deposited the money for these two years and earned interest on it that’s compounded annually. So, formulae of compound interest (CI):

(where P= Initial deposit, n= rate of interest, t=time period)

Following the above formulae:

CI = 20000[1+8/100]2 = 20000 x (1.08) x (1.08) = $23328

Final Amount = $23328

So, to make payment back of this final amount in every 6 months for 2 years, I would make 2 x 12/6 = 4 time installment payments.

So, payment in every 6 months = 23328/4 = $5832

ANSWER= PAYMENT OF $5832 IN EVERY SINGLE MONTHS TO BE DONE 4 TIMES.