Question

A loan of $2,500 is compounded quarterly, at a 10% annual interest rate. When it is repaid after three years, how much interest will be due, in addition to the principal? $_____

Answer 1

$ 3362.22 ( approx )

Explanation:

Since, the amount ( interest with principal amount) in compound interest is,

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

Where,

P = principal amount,

r = annual rate,

n = compounding periods in a year,

t = number of years,

Here, P = $ 2,500,

r = 10 % = 0.1,

t = 3 years,

n = 4 ( 1 year = 4 quarters )

Hence, the final amount would be,

`A=2500(1+(0.1)/(4))^(12)`

`=2500(1+0.025)^(12)`

`=2500(1.025)^(12)`

`=3362.22206062`

`\approx \$ 3362.22`