Suppose hong borrows $8000 at an interest rate of 6% compounded each year. suppose hong borrows $8000 at an interest rate of 6% compounded each year.
A. The amount owed at the end of 1 year is $8480.
B. The amount owed at the end of 2 years is approximately $8988.8.
What is the amount owed?
Using this formula
A = P(1 + r/n)^(nt)
Where:
A = the amount owed at the end of the time period
P = the principal amount
r = the annual interest rate
n = the number of times that interest is compounded per year
t = the number of years
(a) End of 1 year
P = $8000
r = 6% = 0.06
n = 1
t = 1 year)
Substitute the values into the formula:
A = $8000(1 + 0.06/1)^(1*1)
= $8000(1 + 0.06)^1
= $8000(1.06)^1
= $8480
(b) End of 2 years
P = $8000
r = 6% = 0.06
n = 1
t = 2 years
Substitute
A = $8000(1 + 0.06/1)^(1*2)
= $8000(1 + 0.06)^2
= $8000(1.06)^2
= $8988.8
Therefore (a) The amount owed at the end of 1 year is $8480, (b) The amount owed at the end of 2 years is approximately $8988.8
The complete question is
suppose hong borrows $8000 at an interest rate of 6% compounded each year. Assume that no payments are made on the loan.
(a) Find the amount owed at the end of 1 year.
(b) Find the amount owed at the end of 2 years.