Question

An amount of $38,000 is borrowed for 6 years at 8.75% Interest, compounded annually. If the loan is paid in full at the end of that period, how much must bepaid back?

Answer 1

From the compound interes formula, given by

`A=P(1+(r)/(n))^(n\cdot t)`

where A is the future amount, P is the principal value, r is the rate, n is the number of times interest per unit of time t, we have

`\begin{gathered} A=38000(1+(0.0875)/(1))^(1\cdot6) \\ A=38000(1+0.0875)^6 \end{gathered}`

which gives

`\begin{gathered} A=38000(1.0875)^6 \\ A=62857.8019 \end{gathered}`

Then, since the loan is paid in full at the end of the year, we must paid back: $62,857.80