Q:

Suppose you borrow $500 and you plan to pay it back all at once in 5 years. You are charged 2% interest compounded monthly.What is the total amount you will need to pay when the loan is due?

Accepted Solution

A:
Answer:The total amount you will need to pay when the loan is due $553Step-by-step explanation:Points to rememberCompound interest A = P[1 +R/n]^nt Where A - amount P - principle amount R = rate of interest t -  number of years n - number of times compounded yearlyTo find the total amount chargedHere P = $500, R = 2%, n = 12 and t = 5A = P[1 +R/n]^nt   = 500[1 + 0.02/12]^12*5  = 500 * 1.105  = 552.54 ≈ $553Therefore the total amount you will need to pay when the loan is due $553