Question

Charlie is financing a new car for 5 years at 2.5% interest. At the end of the 5 years, Charlie will have paid $3000 in interest. What is the principal amount that Charlie is financing? Use I = PRT to solve the problem.

Answer 1

The multiplier = 100% + 2.5% = 102.5% = 1.025
Number of years = 5
Final value= 3000

Final value = Principal value × $Multiplier^{(number of years)}$
$3000=x (1.025)^{5}$
$\frac{3000}{1.025^{5} }=x$
$x=2651.56$

Hence, principal value is $2651.56