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