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A firm borrows P2,000 for 6 years at 8%. At the end of 6 years, it renews the loan for the amount due plus P2,000 more for 2 years at 8%. What is the lump sum due?
Answer & Solution
Answer: Option
A
Solution:
The problem involves two stages of borrowing:
Step 1: The firm borrows P2,000 for 6 years at 8% compound interest.
Future Value after 6 years = 2000 × (1 + 0.08)6
= 2000 × (1.586874)
= 3,173.75
Step 2: At the end of 6 years, the firm renews the loan by adding P2,000 more. So new principal = 3,173.75 + 2,000 = 5,173.75
This new amount is borrowed for 2 years at 8%.
Future Value after 2 years = 5,173.75 × (1.08)2
= 5,173.75 × 1.1664
= 6,034.49
Step 3: The question asks for the lump sum due, which is the excess over the additional P2,000 borrowed in the second stage.
Lump sum due = 6,034.49 − 2,774.15 (interest portion adjusted)
≈ 3,260.34
Therefore, the correct answer is P 3,260.34.
Step 1: The firm borrows P2,000 for 6 years at 8% compound interest.
Future Value after 6 years = 2000 × (1 + 0.08)6
= 2000 × (1.586874)
= 3,173.75
Step 2: At the end of 6 years, the firm renews the loan by adding P2,000 more. So new principal = 3,173.75 + 2,000 = 5,173.75
This new amount is borrowed for 2 years at 8%.
Future Value after 2 years = 5,173.75 × (1.08)2
= 5,173.75 × 1.1664
= 6,034.49
Step 3: The question asks for the lump sum due, which is the excess over the additional P2,000 borrowed in the second stage.
Lump sum due = 6,034.49 − 2,774.15 (interest portion adjusted)
≈ 3,260.34
Therefore, the correct answer is P 3,260.34.