Question

enny borrowed $500 for five years at 4 percent interest, compounded annually. What is the total amount she will have paid when she pays off the loan? total amount = P (1 + i)t

Answer 1

A = $608.33

Explanation:

Compound interest can be calculated using the formula

A = P (1 + r/n)
`^(nt)`

where initial principal amount (P)

annual interest rate (r as decimal)

time factor (t)

the number of compound periods (n)

the future value of the investment/loan, including interest(A)

Plug values in the equation

A = 500(1+0.04/1)
`^{(5)/(1) }`

A = 608.33

Answer 2

Hello!

The answer is: $608.33.

Why?

The given information is:

`P=StartingAmount=500\\i=0.04\\t=5years`

The total amount is given by the following formula:

`TotalAmount=P(1+i)^(t)`

Where,

P is the starting amount

i, is the interest rate in percentage.

t, is the time.

We must remember that we cannot work with percentages, so we need to convert the given percentage into a real number by dividing it into 100

So,

`4(percent)=(4)/(100)=0.04`

Now, substituting the given information into the formula, we have:

`TotalAmount=500(1+0.04)^(5)=608.33`

So, the total amount after 5 years when she pays off the loan is $608.33.

Have a nice day!