Suppose that you are obtaining a personal loan from your uncle in the amount of $20,000 to be repaid in two years to cover some of your college expenses. You uncle is used to earning 8% interest annually on his investments. What minimum lump-sum payment two years from now would make your uncle happy? a. $23,200 b. $23,328 c. $23,680 d. $23,975

Question

Business

Abel Bowman

2 September, 05:12

Suppose that you are obtaining a personal loan from your uncle in the amount of $20,000 to be repaid in two years to cover some of your college expenses. You uncle is used to earning 8% interest annually on his investments. What minimum lump-sum payment two years from now would make your uncle happy? a. $23,200 b. $23,328 c. $23,680 d. $23,975

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Answers (1)

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Ahmed Kim · Answer 1

Option (b) is correct.

Explanation:

Amount of loan taken from uncle = $20,000

Uncle is used to earning Interest rate = 8%

The minimum lump-sum payment two years from now would make your uncle happy is as follows:

= Amount of Loan * (1 + Interest rate) ^ (Time period)

= $20,000 * (1 + 0.08) ^ (2)

= $20,000 * (1.08) ^2

= $20,000 * 1.1664

= $23,328