Assume that you borrow $2,000 from your sister and that you will pay her back in one lump sum. She charges you 9 percent interest in year 1 and increases the rate by 1 percent per year until the loan is paid off. How much will you owe if you wait until year 3 to pay off the loan?
A) $2,467.91
B) $2,661.78
C) $2,775.23
D) $2,809.53

Question

Quizplus · Accepted Answer

In year 1, the interest is 9%, so the amount owed is $2,000 * 1.09 = $2,180. In year 2, the interest is 10%, so the amount owed is $2,180 * 1.10 = $2,398. In year 3, the interest is 11%, so the amount owed is $2,398 * 1.11 = $2,661.78.

Assume That You Borrow $2,000 from Your Sister and That