Question

Greta takes out a loan of $35,000 the rate of compound interest is 2% per month after 6 months she wants to pay off the loan and the interest. a: how much must she pay altogether? b:how much of what she pays is interest . (with working out please)

Answer 1

To solve this problem, we must use the Time Value of Money equation.

Future Value = Present Value * (1 + interest rate per month)^number of months

F = 35,000 * (1.02)^6 = 39,415.68

A. She will have to pay $39,415.68 altogether.

To find payment in interest, we must subtract the initial loan of $35,000 from $39,415.68

39,415.68 - 35,000 = 4,415.68

B. She will have to pay $4,415.68 in interest.