Final answer:
The total amount to be repaid on a $40,000 loan with an annual compound interest rate of 6.5% over 6 years is $56,740.76.
Step-by-step explanation:
To calculate the amount that must be paid back on a loan of $40,000 with an annual compound interest rate of 6.5% over a period of 6 years, the formula for compound interest can be used:
A = P(1 + r/n)^(nt)
Where:
- A is the amount of money accumulated after n years, including interest.
- P is the principal amount (the initial amount of money).
- r is the annual interest rate (decimal).
- n is the number of times that interest is compounded per year.
- t is the time the money is invested for, in years.
In this case, P = $40,000, r = 6.5% or 0.065, n = 1 (since it is compounded annually), and t = 6. Plugging these values into the formula gives us:
A = $40,000(1 + 0.065/1)^(1*6)
A = $40,000(1 + 0.065)^6
A = $40,000(1.065)^6
A = $40,000 * 1.418519
A = $56,740.76
Therefore, the total amount that must be paid back at the end of the 6-year period is $56,740.76.