You want to get away from the cold so you decide to book an all inckusive trip t

Question

You want to get away from the cold so you decide to book an all inckusive trip to Jamaica. The trip costs $5000, and you have nothing in your savings account. Knowing that you are going to a o a good engineering ob soon your Uncle Frank offers to loan you the money at 7.42% compound interest, with the ful balance due in 3 years. If you choose this option how much will you have to repay Uncle Frank at the end of the loan? S How much of the payment would be interest? s ro A nt L a a no o rs vou a loan the o ters you ss oo at 6,23% e pounded annually, with the balance due in 4 years you choose this option how much wil you have to repay Aunt Lisa at the end of the loan? How much of the payment would be interest? s

Explanation / Answer

We use the formula A = P(1 + i%)^n where i is the rate and n is the time, P is the principal loan and A is the amount paid

You need to repay an amount to Uncle Sam which is given by A = 5000*(1 + 7.42%)^3 = $6197.63. Out of this amount the interest is $1197.63 (after deducting $5000)

You need to repay an amount to aunt Lisa which is given by A = 5000*(1 + 6.23%)^4 = $6367.35. Out of this amount the interest is $1367.35 (after deducting $5000)

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