Question

13. Justin generously lends $500,000 to his friend, Jamie. However, being a maleficent businessman, he charges Jamie interest at 8.6 % per annum compounded quarterly. How much will Jamie owe Justin after 25 years? What is the accumulated interest? [3 marks]

Answer 1

Jamie will owe $ 41,95,725.83 ( approx ),

Accumulated interest is $ 36,95,725.83

Explanation:

Since, the amount formula in compound interest is,

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

Where, P is the principal amount,

r is the annual rate of interest,

n is the compounding periods in a year,

t is the time in years,

Here, P = $ 500,000,

r = 8.6 %=0.086,

n = 4,

t = 25 years,

By substituting the values,

`A=500000(1+(0.086)/(4))^(100)`

`=500000(1+0.0215)^(100)`

`=500000(1.0215)^(100)`

`=4195725.82746`

`\approx 4195725.83`

Also, the accumulated interest = A-P = 4195725.83 - 500000 = $ 3695725.83