Question

Manuel borrowed $1,500 from his bank and signed a

contract to make monthly payments for two years at 4%
interest compounded annually. How much total interest
will Manuel pay on this loan?

Answer 1

The total interest to pay back on the loan is $122.40

Explanation:

Here. we want to get the amount of interest on the loan

We are going to use the compound interest formula here

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

where A is the amount to be paid back

P is the amount borrowed called the principal which is $1,500

r is the interest rate which is 4% annually

This is same as 4/100 = 0.04

n is the number of times the interest will be compounded per year ; annually means yearly and so for this case, n = 1

t is the number of years = 2

So we have;

A = 1500(1 + 0.04/1)^(2)(1)

A = 1500(1.04)^(2)

A =$ 1,622.40

So the amount of interest is the difference between the amount borrowed and the value to pay back

That will be;

$1,622.40 - $1,500

= $122.40