Question

Ray borrows $9,325 from his parents today to start his own car rental business and agrees to pay back the borrowed amount together with five-year worth interest payment in 5 years at 7.43% interest rate per year.

How much does Ray need to pay back the loan after 5 years?

Answer 1

Loan amount taken by Ray = $9325

Ray will pay borrowed amount along with 5-year worth Interest at the end of year 5.

Calculating the Payment amount at the end of year 5 along with accumulated Interest:-

Future Value = Current Loan amount*(1+r)^n

Where,

r = Periodic Interest rate = 7.43%

n= no of periods = 5

Future Value = $9325*(1+0.0743)^5

= $9325*1.43096126747

Future Value = $13,343.71

So, the amount Ray need to pay back as loan after 5 years is $13,343.71