Asked by Valeriya Pestrikova on Jun 10, 2024
Verified
An original loan of $6,500 has accumulated to $10,093.14 based on 9.2% interest compounded annually. The loan is five years old.
Compounded Annually
Occurs when interest is added to the principal sum of an investment or loan once per year, resulting in interest on interest.
- Gain an understanding of the fundamentals and arithmetic of compound interest.
Verified Answer
FD
Faith Daniel
Jun 16, 2024
Final Answer :
True
Explanation :
Using the formula for compound interest, A = P(1 + r/n)^(nt), where A is the amount of money accumulated after n years, including interest, P is the principal amount ($6,500), r is the annual interest rate (9.2% or 0.092), n is the number of times that interest is compounded per year (1, since it's compounded annually), and t is the time the money is invested or borrowed for in years (5). Plugging in the values: A = $6,500(1 + 0.092/1)^(1*5) = $6,500(1.092)^5 ≈ $10,093.14.
Learning Objectives
- Gain an understanding of the fundamentals and arithmetic of compound interest.