Question

Edgar accumulated $5,000 in credit card debt. If the interest rate is 20% per year and he does not make any payments for 2 years, how much will he owe on this debt in 2 years by compounding continuously? Round to the nearest cent.

Answer 1

Answer:7,434.57

Explanation: A= 5000(1+0.2/12)^12•2

Answer 2

$7200

Explanation:

The interest rate on $5,000 accumulated by Edgar is 20%.

He does not make any payment for 2 years and the interests are compounded continuously.

The amount of money he owes after 2 years is the original $5000 and the interest that would have accumulated after 2 years.

The formula for compound amount is:

`A = P(1 + R)^T`

where P = amount borrowed = $5000

R = interest rate = 20%

T = amount of time = 2 years

Therefore, the amount he will owe on his debt is:

`A = 5000 (1 + 20/100)^2\\\\A = 5000(1 + 0.2)^2\\\\A = 5000(1.2)^2\\`

A = $7200

After 2 years, he will owe $7200