Question

An amount of $37,000 is borrowed for 6 years at 5% interest, compounded annually. If the loan is paid in full at the end of the period, how much must be paid back?

Rounded answer please

Answer 1

Answer: 49583.54 dollars

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Work Shown:

P = 37000 is the principal (aka amount loaned out)

r = 0.05 is the interest rate in decimal form

t = 6 is the number of years

n = 1 tells us we are compounding 1 time per year (aka annual compounding)

Those four values are plugged into the formula below and you use a calculator to simplify

A = P*(1+r/n)^(n*t)

A = 37000*(1+0.05/1)^(1*6)

A = 49583.538703125

A = 49583.54 is the full amount to pay back

Side note:

The amount of interest paid is A - P = 49583.54 - 37000 = 12583.54