Money is borrowed at a 16% interest.after one year, $1265.56 pays off the loan....

[WeebleWobble]

...How much was origannly borrowe? could you please explain your answer? thanks

 

[roderick_young]

I'll do it with 12% interest, then you do it with the real number.

If the amount originally borrowed was $1000, then the interest due after 1 year would be $1000*12% = $120. So the total amount to pay off the loan would be $1120. We could also have gotten this by multiplying

Loan x 1.12 = Payoff (after 1 year)

So if someone told me the payoff amount was $1321,

Loan x 1.12 = $1321, and I could solve for the original loan amount $1321/1.12 =$1179.46

This originally threw me off, because in real life, it is unusual to borrow money but make no payments for a year.

 

[guillermo]

1265.56 = pv*(1 + 0.16)^1

pv = 1265.56/1.16

pv = $1,091