Question

You take out a student loan for $80,000 with 2.75% annual interest to pay for your first year of college. This loan will cover all course fees and books. Write an exponential growth equation to model the situation. Then determine how much will money you will have to pay back for his loan when you graduate in 4 years.

Answer 1

Exponential growth equation would be

Amount= 80,000 (1+2.75/100) ⁴

At the end of 4 years I would have to repay an amount of $ 89,169.70

Explanation:

Since, the amount is loaned it would vary exponentially i.e. in a compounding manner.

We know that for compound interest, the equation is written as-

Amount= principal(1+r/100) ˣ

Where r- rate of interest which is 2.75% annually

And x= time period= 4 years as in the question

Principal= $ 80,000

Therefore, Equation becomes-

Amount= 80,000(1+2.75/100) ⁴

On solving this Amount would equal $ 89,169.70

Hence, at the end of 4 years I would have to repay an amount of $ 89,169.70.