Suppose a construction project anticipates end-of-month draws of $400,000, $300,000, and $600,000 consecutively. What will be the balance owed at the end of the third month if the interest on the loan is 7% per annum compounded monthly), and no payments of either principal or interest are required during the construction period?

Question

Quizplus · Accepted Answer

The correct answer is A because the balance owed at the end of the third month is $1,306,430. This can be calculated using the formula for compound interest:A = P(1 + r/n)^(nt)where:A is the future value of the loanP is the principal amount of the loanr is the annual interest raten is the number of times per year that the interest is compoundedt is the number of yearsIn this case, the principal amount of the loan is $1,300,000, the annual interest rate is 7%, the interest is compounded monthly (n = 12), and the number of years is 3/12 (since the draws are made at the end of each month). Plugging these values into the formula, we get:A = 1,300,000(1 + 0.07/12)^(12*3/12)= 1,300,000(1.005833)^3= 1,306,430.02Therefore, the balance owed at the end of the third month is $1,306,430.

Suppose a Construction Project Anticipates End-Of-Month Draws of $400,000, $300,000