Milton took out a loan for S2400 at 7% interest compounded annually the makes yearly payments of $140, will he ever pay off the loan?A. Yes, because $140 is less than the amount of interest he ischarged per year.)B. No, because $140 is greater than the amount of interest he ischarged per year.C. Yes, because $140 is greater than the amount of interest he ischarged per year.D. No, because $ 140 is less than the amount of interest he ischarged per year.
Accepted Solution
A:
Answer:We will choose option D.Step-by-step explanation:Milton took out a loan for $2400 at 7% interest compounded annually.
So, after one year his loan will grow up to [tex]2400(1 + \frac{7}{100} )^{1} = 2568[/tex] dollars.
Therefore, the interest added to the principal is $(2568 - 2400) = $168
But Milton makes yearly payment of $140 which is less than the interest i.e. $168 which is added to his loan in the first year.
Therefore, he can not ever pay off the loan. So, we will choose option D. (Answer)