Question

Suppose Chris borrows $ 7000 at an interest rate of 8% compounded each year.Assume that no payments are made on the loan.Follow the instructions below. Do not do any rounding.(a) Find the amount owed at the end of 1 year$0(b) Find the amount owed at the end of 2 years.$0Х?

Answer 1

Explanation

The formula for the Amount based on compound interest is given as:

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

Since the principal is compounded annually, therefore n =1. Also, P = principal = $7000, ratte = r = 8%, t= time

Hence when t = 1 year

$\begin{gathered} A=7000(1+\frac{8}{100})^1 \\ A=7000(1.08) \\ A=7560 \end{gathered}$

Answer A: $7560

When t = 2 years

$\begin{gathered} A=7000(1+\frac{8}{100})^2 \\ A=7000(1.08)^2 \\ A=8164.8 \end{gathered}$

Answer B: $8164.8