You borrowed $20,000 today from your uncle to finance your college education. Yo

Question

You borrowed $20,000 today from your uncle to finance your college education. Your uncle is very flexible in your repayment plan, but he will charge an 8% interest compounded annually for any unpaid balance. Suppose your payment plan is as follows
payment one: $5,000 two years from now
payment two: $7,000 three years from now
payment three: $X five years from now

How much (X) do you need to come up with in year five to ensure you have the necessary funds to pay off the loan?

$10,640

$14,923

$15,981

$13,562

$10,640

$14,923

$15,981

$13,562

Explanation / Answer

LOan = PV of repayments

20000 = 5000/1.08^2 + 7000/1.08^3 + X/1.08^5

20000 = 9843.52 + .68058X

X = (20000 - 9843.52)/.68058

X = 14923.27

Correct option:

b. $14,923

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