Question

Jan borrows $4,000 from a credit union for dental work. The credit union charges 4% annual interest compounded quarterly.

If she doesn't need to make a payment for 1 year, how much will she owe at the end of 1 year? Round to the nearest dollar.

Answer 1

To calculate the amount Jan will owe at the end of 1 year, we can use the formula for compound interest:

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

Where:

A is the final amount owed

P is the principal amount borrowed ($4,000 in this case)

r is the annual interest rate (4% or 0.04 as a decimal)

n is the number of times the interest is compounded per year (quarterly in this case)

t is the number of years (1 year in this case)

Plugging in the values:

A = 4000(1 + 0.04/4)^(4*1)

A = 4000(1 + 0.01)^4

A = 4000(1.01)^4

Calculating this, we find:

A ≈ $4,161.04