Question

An amount of 46,000 is borrowed for 9 years at 6.25% interest, compounded annually. If the loan is paid in full at the end of that period, how much must be paid back?

Use the calculator provided and round your answer to the nearest dollar.

Answer 1

You must pay $79,381.3

Explanation:

This is a problem of compound interest.

The formula used to solve these problems is:

`P = p_0(1 + r) ^ t`

Where P is the amount that must be paid at the end of t years,

`p_0` is the initial amount

r is the compound interest rate

If the initial amount was 46,000

The compound interest rate is 0.0625 and the loan is for 9 years, then at the end of the 9 years, the amount that must be paid is:

`P = 46,000(1 + 0.0625) ^ 9`

We solve for P and obtain:

`P = 79,381.3`