Question

Jaguar Systems LLC borrowed $20,000 to finance new plasma cutter. The bank is very flexible in their repayment plan but will charge an 2% interest compounded annually for any unpaid balance. Suppose your payment plan is as follows. Payment 1: $5,000 two years from now Payment 2: $7,000 three years from now Payment 3: $X five years from now What is the value of X required in year 5 to ensure you have the necessary funds to pay off the loan?

Answer 1

Given

Loan taken = 20,000$

Interest rate on unpaid balance = 2%

Year	Amount	Calculation
0	20000
1	20400	20000*(1+2%)
2	15808	20400*(1+2%) - (5000)
3	9124.16	15808*(1+2%) - (7000)
4	9306.6432	9124.16*(1+2%)
5	9492.7761	9306.643*(1+2%)

Therefore X value that is the amount that needs to be paid in 5th year = 9492.7761$