Question

If you borrow $894 for four years at an interest rate of 3%, how much interest will you pay?

Answer 1

$1006.20

Explanation:

This is an example of compound interest.

To work this out you would first have to convert the percentage into a decimal, you can do this by dividing 3 by 100, which gives you 0.03. You are dividing by 100 as percentages are out of 100. Then you would add 1 to 0.03, which gives you 1.03. This is because you are finding percentage increases. Then you would multiply 894 by 1.03 to the power of 4, which gives you 1006.20. This is because you are finding 3 percent and adding it on and then finding 3 percent of that, this is why we put it to the power of how much time.

1) Divide 3 by 100.

`3/100=0.03`

2) Add 1 to 0.03.

`0.03+1=1.03`

3) Multiply 894 by 1.03 to the power of 4.

`894*1.03^(4)=1006.20`