Question

Background Info: Tom finds a second personal loan option. This loan would also require him to repay the principal in one lump sum after three years.
Loan Option B

Principal: $9,000

Type of Interest: Compound Interest

Interest Rate: 8%

Rate of Accrual: Once per year

Use the formula for annual compound interest.

A = P (1 + StartFraction r Over n EndFraction)nt

Remember, A refers to the total amount owed.

Calculate the total amount that Tom would repay.

$10,337
$11,337
$12,337
$13,337

Answer 1

Answer:  $11,337

Explanation:

Given formula for annual compound interest.:

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

Given: Principal(P): $9,000

Type of Interest: Compound Interest

Interest Rate(r): 8% = 0.08  [In decimal]

Rate of Accrual: Once per year , i.e. n=1

Time (t)= 3 years

Put all the values in the above formula , we get

$A=9000(1+\dfrac{0.08}{1})^{1\times3}\\\\=9000\left(1.08\right)^{3}\\\\= 9000(1.259712)\\\\\approx\ 11,337$

Hence, the total amount that Tom would repay : $11,337