223k views
1 vote
Edgar accumulated $9,000 in credit card debt. If the interest rate is 20% per year and he does not make any payments for

2 years, how much will he owe on this debt in 2 years for quarterly compounding? Round your answer to the nearest cent.

User ChuckFive
by
4.9k points

1 Answer

3 votes

To calculate the total amount of interest that Edgar will owe on his credit card debt after 2 years of quarterly compounding at a 20% annual interest rate, we need to use the formula A = P(1 + r/n)^nt, where A is the total amount of money owed after t years, P is the initial principal (or amount borrowed), r is the annual interest rate, n is the number of times the interest is compounded per year, and t is the number of years. In this case, the initial principal is $9,000, the annual interest rate is 20%, the number of times the interest is compounded per year is 4 (since the interest is compounded quarterly), and the number of years is 2. Plugging these values into the formula, we get A = $9,000(1 + 0.20/4)^4 * 2 = $9,000(1.05)^8 = $9,000 * 1.4064 = $12,658.40. Thus, after 2 years of quarterly compounding at a 20% annual interest rate, Edgar will owe approximately $12,658.40 on his credit card debt. This result should be rounded to the nearest cent, giving us $12,658.40.

User Maskacovnik
by
5.0k points