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Unformatted text preview: amount is $1000 and the interest amounts to $100. Further if we suppose the loan is extended over the second year the amount to be repaid will be more than $1200 because at the end of the first year $1100 were repayable and hence have been renewed as loan for the second year. 10% of 1100 will be equal to $110. Therefore at the end of the second year, the borrower would have to repay $1210. 1000 (principal) + 100 (first years interest) + 110 (second years interest) = 1210...
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 Fall '10
 

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