Question

Wallace took out a $5,000 loan for six years. He is being charged 4 percent interest, compounded annually. Calculate the total amount he will pay.

Answer 1

Wallace will pay $6,325 after 6 years.

Given:
Principal = 5,000
interest rate = 4%
Term = 6 years

Compound Interest means that the interest earned will also be earning its own interest.

Compound Interest = Principal x (1+r)^t
C.I. = 5,000 x 1.04⁶
C.I. = 5,000 x 1.265
C.I. = 6,325  TOTAL AMOUNT HE WILL PAY.

6,325 - 5,000 = 1,325 interest for 6 years.

Answer 2

A=P(1+r/n)^nt A=5000(1+.04/1)^1*6 A=5000(1.04)^6 A=5000(1.265319018) A=6,326.60 (rounded)