Richard borrows $10,000 from his mother. He will repay her $2,000 at the end of each of the next four years and the balance at the end of the fifth year. If the interest rate is 12%, what is the amount to be paid at the end of the fifth year?

Question

Quizplus · Accepted Answer

The future value of the four $2,000 payments at the end of each of the next four years is $2,000 x (F/A, 12%, 4) = $2,000 x 3.604779 = $7,209.56. The future value of the balance at the end of the fifth year is $10,000 - $7,209.56 = $2,790.44. The amount to be paid at the end of the fifth year is $2,790.44 x (F/P, 12%, 1) = $2,790.44 x 1.12 = $3,128.00.

Richard Borrows $10,000 from His Mother