Question

An amount of 41,000 is borrowed for 15 years at 8.5% interest, compounded annually. If the loan is paid in full at the end of that period, how much must be paid back?

Use the calculator provided and round your answer to the nearest dollar.

Answer 1

Answer: $93,275.00

Explanation:

$41,000 + $41,000 (8.5%) (15)

= $41,000 + $52,275.00

= $93,275.00

Answer 2

Answer: $139390 must be paid back.

Explanation:

We would apply the formula for determining compound interest which is expressed as

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

Where

A = amount to be played back at the end of t years

r represents the interest rate.

n represents the periodic interval at which it was compounded.

P represents the principal or initial amount borrowed.

From the information given,

P = 41000

r = 8.5% = 8.5/100 = 0.085

n = 1 because it was compounded once in a year.

t = 15 years

Therefore,

A = 41000(1 + 0.085/1)^1 × 15

A = 41000(1 + 0.085)^15

A = 41000(1.085)^15

A = $139390