Question

Adisa borrows $5,000 at 14% interest, compounded twice a year. How much does she owe at the end of 8 years?

Answer 1

The borrower owes $14,760.82  at the end of 8 years

What is compounding interest?

Compounding interest means that earlier interest would earn more interest in the future alongside the loan principal.

Note that in this case the loan continues to accumulate interest because there no repayments, in other words, the loan balance after 8 years, which comprises of the principal and interest for 8 years can be computed using the future value formula of a single cash flow(the single cash flow is the principal) as shown thus:

FV=PV*(1+r/n)^(n*t)

FV=loan balance after 8 years=unknown

PV=loan amount=$5,000

r=annual interest=14%

n=number of times in a year that interest is compounded=2(twice a year)

t=loan period=8 years

FV=$5000*(1+14%/2)^(2*8)

FV=$5000*(1.07)^16

FV=$5000*2.95216374856541

FV=loan balance after 8 years=$14,760.82

Find out more about semiannual compounding on:brainly.com/question/7219541.

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