Question

An amount of 46,000 is borrowed for 9 years at 6.25% interest, compounded annually. If the loan is paid in full at the end of that period, how much must be paid back?

Use the calculator provided and round your answer to the nearest dollar.

Answer 1

$79,381

Explanation:

We can use the formula for compound growth to solve this. Thus,

`F=P(1+r)^t`

Where

F is the future amount (the amount that must be paid back)

P is the initial amount (it is 46,000)

r is the annual rate of interest (here it is 6.25%, in decimal it is 0.0625)

t is the number of year (9 years, t = 9)

Putting them into the formula, we can solve for F, our answer:

`F=P(1+r)^t\\F=46,000(1+0.0625)^9\\F=46,000(1.0625)^9\\F=79,381.31`

Rounded to nearest dollar, $79,381