A person borrows $150 that he must repay in a lump sum no more than 8 years from now. The interest rate is 9.9% annually compounded. The borrower can repay the loan at the end of any earlier year with no prepayment penalty. a. What amount will be due if the borrower repays the loan after 2 year? b. How much would the borrower have to repay after 4 years? c. What amount is due at the end of the eighth year?

a. $181.17

b. $218.82

c. $319.21

Explanation:

If the borrower repays the loan after 2 year

PV = $150

n = 2

r =  9.9%

P/yr = 1

Pmt = $0

FV = ?

Using a financial calculator, FV = $181.1702

The amount that will be due if the borrower repays the loan after 2 year is $181.17.

If the borrower repays the loan after 4 years

PV = $150

n = 4

r =  9.9%

P/yr = 1

Pmt = $0

FV = ?

Using a financial calculator, FV = $218.8175

The amount that will be due if the borrower repays the loan after 2 year is $218.82.

If the borrower repays the loan after 8 years

PV = $150

n = 8

r =  9.9%

P/yr = 1

Pmt = $0

FV = ?

Using a financial calculator, FV = $319.2073

The amount that will be due if the borrower repays the loan after 2 year is $319.21.

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