Question

Suppose Manuel borrows $9000 at an interest rate of 7% compounded each year. Assume that no payments are made in the loan. (a) Find the amount owed at the end of the year.(b) Find the amount owed at the end of 2 years.Do not do any rounding.

Answer 1

Given:

Principal(p) = $9000 rate(r) = 7% = 0.07

n=1 (number of time the interest is compounded)

a)

time (t) = 1

Using the formula;

`A=p(1+(r)/(n))^(nt)`

`=9000(1+(0.07)/(1))^(1*1)`
`=9000(1.07)`
`=9630`

Hence, the amount owed at the end of the year is $9630

b)

t=2

Substitute the values into the formula and evaluate

`A=9000(1+(0.07)/(1))^(1*2)`
`=9000(1.07)^2`
`=9000(1.1449)`
`=10304.1`

Hence, the amount owed at the end of 2 years is $10304.1