To finance your education, you borrow $10,000 from a relative at an annual interest rate of 5%. You promise to pay her back in eight years. Which formula will provide the correct formula for calculating the value of your payment in eight years? A)$10,000(1 + 0.05) B)$10,000(1 + 5) C)$10,000(1 + 0.05)⁸ D)$10,000(1 + 0.5)⁸

Question

Quizplus · Accepted Answer

The correct formula for calculating the value of the payment in eight years is the future value formula, which is FV = PV(1+r)n. In this formula, PV is the present value of the loan ($10,000), r is the annual interest rate (5%), and n is the number of years (8). Therefore, the correct formula is $10,000(1+0.05)^8, which is option C. Options A and B do not include the exponent to account for the time value of money, and option D uses an incorrect interest rate of 0.5 instead of 5%.

To Finance Your Education, You Borrow $10,000 from a Relative