Question

A loan of $2,500 is compounded quarterly, at a 10% annual interest rate. When it is repaid after three years, how much interest will be due, in addition to the principal? $_____

Answer 1

Answer:

$ 3362.22 ( approx )

Step-by-step explanation:

Since, the amount ( interest with principal amount) in compound interest is,

$A=P(1+\frac{r}{n})^{nt}$

Where,

P = principal amount,

r = annual rate,

n = compounding periods in a year,

t = number of years,

Here, P = $ 2,500,

r = 10 % = 0.1,

t = 3 years,

n = 4 ( 1 year = 4 quarters )

Hence, the final amount would be,

$A=2500(1+\frac{0.1}{4})^{12}$

$=2500(1+0.025)^{12}$

$=2500(1.025)^{12}$

$=3362.22206062$

$\approx \ 3362.22$