Question

Becky takes out a loan for $5,000. She plans to repay the loan in 8 years. The interest rate is 7.3% compounded annually. How much will she have to pay in interest?

Answer 1

$3785.53

Explanation:

You want the interest amount due at the end of 8 years on a $5000 loan at 7.3% compounded annually.

Future value

The amount due is multiplied by (1 +0.073) each year. After 8 years, the amount due will be ...

5000(1.073^8) ≈ 8785.53

Of that, 5000 is the principal amount, so the remainder is interest.

interest = $8785.53 -5000

interest = $3785.53

Becky will have to pay $3785.53 in interest.

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