Question

Harley took out a 1-year loan for $2800 at an electronics store to be paid back

with monthly payments at a 16.8% APR, compounded monthly. If the loan

yments for the first 3 months, how much will Harley owe when he

begins making payments?


A. $3308.37


B. $3173.22


C. $2800.00

D. $2919.25

Answer 1

`(D)\$2919.25`

Explanation:

For a Principal P loaned at an annual rate, r% for a period of n years compounded k times a year,

`Amount \: at \: Compound \: Interest= P(1+(r)/(k) )^(nk)`

Mr Harley's Loan, P=$2800

The Annual Interest Rate,r =16.8%=0.168

Since the interest is compounded monthly, the period, k=12

Monthly Interest Rate=0.168/12

However, since we are required to calculate how much Mr Harley will owe after three months, our time, nk=3 Months.

Therefore:

`\text{Amount owed by Mr Harley after 3 Months}= 2800(1+(0.168)/(12) )^(3)\\=\$2919.25`