Question

14. Jackie borrows $1,500 at 5.75% compound

interest for five years. If she makes monthly
payments, how much is her loan amount after
five years? Round answer to the nearest dollar.
[A] $1,536
[D] $1,725
[B] $2,073
[E] $1,998
[C] $2,050
16 Robert

Answer 1

To find the loan amount after five years, we need to calculate the compound interest on the loan. The compound interest is calculated by multiplying the principal (the initial amount borrowed) by the compound interest rate, raised to the power of the number of compounding periods. In this case, the compound interest rate is 5.75%/12 = 0.475% per month, and there are 12*5 = 60 compounding periods (12 months per year for 5 years).

The compound interest is therefore calculated as follows:

Compound interest = $1,500 * (1 + 0.475%)^60 - $1,500

= $1,725 - $1,500

= $225

So the loan amount after five years is $1,725. Therefore, the correct answer is [D] $1,725.