A friend of Seths who is a real estate developer needs to bo

A friend of Seth’s who is a real estate developer needs to borrow $80,000 to finish a development project. He is desperate for cash and offers Seth 18%, compounded monthly, for 2 1 over 2 years. Find the future value of the loan using the future value table. Does this loan meet Seth’s goals of low risk? How could he reduce the risk associated with this loan?

Solution

sum has to be borrowed from seth =80,000

rate of interest=18%

time duration = 2 yrs and compounded, monthly

we known formula, compound interest= p (1 + R/100)^(n/12) - p

^{amount = compound interest + sum,}

^{there fore, compound interest = amount - sum}

C.I = 80000(1+18/100)^(21/12) - 80000

= $31392

therefore, compound interest for $80,000 is $ 31392.

The future value of total loan is =80000+ 31392

= $111392