1. A P3000 loan was originally made at 8% simple interest for 4 years. At the end of this period the loan was extended 3 years, without the interest for 4years. At the end of this interest rate was made 10% compounded semi-

1. A P3000 loan was originally made at 8% simple interest for 4 years. At the end of this period the loan was extended 3 years, without the interest for 4years. At the end of this interest rate was made 10% compounded semi-

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Concept explainers

Cost of Credit

The cost of credit is an extra amount that the borrower has to pay besides the loan amount. These credit charges may vary from loan to loan. The cost of credit includes interest charges, maintenance charges, and arrangement charges. Some of the costs are mandatorily collected by the lender based on the loan amount and tenure of the loan. The cost of credit is also called finance charges of the credit.

Question

1. A P3000 loan was originally
made at 8% simple interest for 4
years. At the end of this period the
loan was extended 3 years,
without the interest for 4years. At
the end of this interest rate was
made 10% compounded semi-
annually.
a. How much should the borrower
pay at the first 4 years?
b. How much should the borrower
pay at the end of 7 years?

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