John will receive a trust fund when he turns 18 years old 21 months from now. The current balance is $11000 an
John will receive a trust fund when he turns 18 years old 21 months from now. The current balance is $11000 and the fund earns 7.5% interest compounded monthly. He wishes to buy a boat and he can afford $130 each month on a loan to finance it. How much can he borrow at 5% interest, if he wishes to be able to pay off the balance of the loan when he receives his trust fund?
Public Comments
- Hi, $11000 at 7.5% interest compounded monthly for 21 months 0r 1.75 years will become A = 11000(1 + .075/12)^(12*1.75). That makes $12,537.66 the amount he will receive on his 18th birthday. I will assume he can currently pay the $130 a month without his inheritance. So, at 5% interest for 21 months or 1.75 years, assuming interest on this loan is also calculated monthly, then 12537.66 = borrowed amount( 1 + .05/12)^ (1.75*12) 12537.66 = borrowed amount (1.004166666666)^21 12537.66 = borrowed amount (1.0912438) $11,489.33 = borrowed amount that could be repaid with 21 months' interest from his trust fund. This answer would change if interest was not calculated monthly or if the monthly $130 needed to be included in the use of the trust fund. I hope that helps!! :-)
- The trust fund will be worth $12537.66 21 months from now. So, John will borrow $x at 5%, and wants the balance to be $12537 in 21 months. He can do this if he borrows $14,100. At 5% interest (compounded monthly) he will owe $12539 in 21 months.
