Question

the possible answers are 2889, 2909, 2929, 2949, 2969

8. Jeremy loans $2,500 to his son on the condition that he repays with 5 annual payments consisting of interest on the outstanding balance and equal amounts of principal repayments. Payments are made at the end of the year. Jeremy deposits the total payment he receives into a fund that accumulates at the same interest rate. Given that his son repaid $517.50 at the end of the 5th year, how much has the fund accumulated to by the end of the 5 years?

Answer 1

Solution :-

As the loan Amount is $2500

The Amount paid in 5 years

so the amount paid each year = $2500 / 5 = $500

The Last installment paid = $517.50

Therefore interest in last installment = $517.50 - $500 = $17.50

Therefore rate of interest = $17.50 / $500 = 3.5% per year

B C D E F A 1 Solution :- 2 3 Year Opening Balance $2,500 $2,000 $1,500 $1,000 $500 Principal $500 $500 $500 $500 $500 Interest $87.5 $70.0 $52.5 $35.0 $17.50 Installment $587.50 $570.00 $552.50 $535.00 $517.50 Closing $2,000 $1,500 $1,000 $500 $0 3 5 9 10 Now Calculate the Future Value at the end of 5 years 11 12 Year Amount FVF @ 3.5% FV $587.50 1.148 $674.17 2 $570.00 1.109 $631.97 $552.50 1.071 $591.85 $535.00 1.035 $553.73 $517.50 1.000 $517.50 $2,969

Therefore the answer is $2969