Question

Javier Alverez borrowed $3345 for new business equipment. He agreed torepay the loan in 87 days at an exact interest rate of 10.5 percent. What is thematurity value of his loan?

Answer 1

The maturity value of a loan is the total amount you must repay, including the principal and any interest you incur.

The interest is calculated by:

I = Prt

Where P is the amount of the loan, r is the interest rate and t is the time of the loan.

We are given:

P = $3345

r = 10.5%

t = 87 days

Convert the interest rate to daily by dividing by 365 (assuming a calendar 365-day year):

`r=(10.5)/(100\cdot365)=0.00028767`

Calculate the interest (we keep all the decimals in the calculator):

I = $3345 x 0.00028767 x 87

I = $83.72

The maturity value (final value) of the loan is:

FV = P + I = $3345 + $83.72

FV = $3428.72