Question

Question

If $500 is borrowed with an interest of 21.0% compounded monthly, what is the total amount of money needed to pay it
back in 1 year? Round your answer to the nearest dollar. Do not round at any other point in the solving process; only round
your final answer.

Answer 1

$558.68

Explanation:

The amount of each monthly payment is given by the amortization formula:

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

where P is the principal borrowed, r is the annual rate, n is the number of times per year interest is compounded, and t is the number of years.

We want to find nA where we have n=12, r=0.21, t=1, P=500. Filling in these values, we get ...

nA = Pr/(1 -(1 +r/n)^-n) = $500(0.21)/(1 -1.0175^-12) = $558.68

The total amount needed to repay the loan in 1 year is $558.68.

Answer 2

$615.72

Explanation:

Use the compound interest formula and substitute the given value: A=$500(1+0.21/12)^12(1)

Simplify using order of operations: A=$500(1.0175)^12=$500(1.231439315)

=$615.72