153k views
1 vote
If you borrow $18,000 for 8 years at a 4.25% interest rate compounded quarterly, how much will you have to pay at the end of the eight years?

1 Answer

2 votes

Final answer:

After borrowing $18,000 at a 4.25% interest rate compounded quarterly for 8 years, you will have to pay approximately $26,409.16 by the end of the term.

Step-by-step explanation:

To calculate the amount you will have to pay at the end of the loan term with compound interest, you can use the formula for the future value of a compound interest investment: A = P(1 + r/n)^(nt). Here, A is the amount of money accumulated after n years, including interest, P is the principal amount ($18,000), r is the annual interest rate (4.25%), n is the number of times that interest is compounded per year (quarterly, so 4 times), and t is the time the money is invested for in years (8 years). Using these values, the calculation is as follows:

  1. Convert the interest rate from a percentage to a decimal by dividing by 100: 4.25% / 100 = 0.0425.
  2. Divide the annual rate by the number of compounding periods per year: 0.0425 / 4 = 0.010625.
  3. Add 1 to the above result: 1 + 0.010625 = 1.010625.
  4. Raise this result to the power of the total number of compounding periods: (1.010625)^(4*8) = (1.010625)^32.
  5. Finally, multiply the principal amount by the result from step 4 to find the future value: $18,000 * (1.010625)^32 = $26,409.16 (rounded to two decimal places).

Therefore, at the end of the eight years, you would have to pay approximately $26,409.16.

User Cketti
by
8.2k points

No related questions found

Welcome to QAmmunity.org, where you can ask questions and receive answers from other members of our community.

9.4m questions

12.2m answers

Categories