Simple Interest: I and Compound Interest: A

Question

$525 is borrowed from a bank that charges 4% interest compounded annually. How much is owed after 7 years?

Answer 1

the underlying formula that you want to use here to compute compound interest is

A = P(1 + r/n)^nt

for this scenario that means taking

A = 525(1 + 0.04/1)^(1*7)

A = 690.86

meaning that after 7 years, $690.86 will be owed on the loan

Answer 2

Hello Drake!

This question requires the compounded interest equation which is: A = P(1+(r/n))^nt

Where A represents the total amount owed, P represents the principle value or what you initially put in, r representing the interest rate, n representing the amount of times the interest is compounded in a year (annually, biannually, monthly, etc.), and t representing the amount of time passed.

Therefore, we are looking for A - the amount owed after 7 years.

P = $525 because it's the initial amount

r = 0.04 because the 4% must be converted into a decimal. (%/100)

n = 1 because it's done annually so only once a year

t = 7 years because that's the amount of time that has passed.

So we will get

A = 525(1+(0.04/1)⁽¹⁾⁽⁷⁾ = $690.86