Question

Suppose yoko borrows $3500 at an interest rate of 4% compounded each year Find the amount owed at the end of 1 year

Answer 1

Amount owed at the end of 1 year is 3640

Solution:

Given that yoko borrows $3500.

Rate of interest charged is 4% compounded each year

Need to determine amount owed at the end of 1 year.

In our case :

Borrowed Amount that is principal P = $3500

Rate of interest r = 4%

Duration = 1 year and as it is compounded yearly, number of times interest calculated in 1 year n = 1

Formula for Amount of compounded yearly is as follows:

$A=p\left(1+\frac{r}{100}\right)^{n}$

Where "p" is the principal

"r" is the rate of interest

"n" is the number of years

Substituting the values in above formula we get

$\mathrm{A}=3500\left(1+\frac{4}{100}\right)^{1}$

$\begin{array}{l}{A=\frac{3500 \times 104}{100}} \\\\ {A=35 \times 104} \\\\ {A=3640}\end{array}$

Hence amount owed at the end of 1 year is 3640