Question

An amount of $21,000 is borrowed for 10 years at 4% interest, compounded annually. If the loan is paid in full at the end of that period, how much must be
paid back?
Use the calculator provided and round your answer to the nearest dollar.

Answer 1

If the loan is paid in full at the end of that period, then amount to be paid back is $ 52085.13

Solution:

Given, An amount of $21,000 is borrowed for 10 years at 4% interest, compounded annually.  

The loan is paid in full at the end of that period, how much must be paid back

Now, let us find compound interest first.

$\text { Compound interest }=\text { amount } \times\left(1+\frac{r}{100}\right)^{t}$

Here amount = 21000

r = rate of interest = 4%

t = time period = 10 years

By plugging in values we get,

$\begin{array}{l}{\text { Compound interest }=21000 \times\left(1+\frac{4}{100}\right)^{10}} \\\\ {=21000 \times(1+0.04)^{10}} \\\\ {=21000 \times 1.04^{10}} \\\\ {=21000 \times 1.480=31085.1299}\end{array}$

So, compound interest on $21000 is $31085.13 approximately.

Now, amount to be paid back = loan amount + compound interest

Amount to be paid back = 21000 + 31085.13 = 52085.13

Hence, amount to be paid back is $ 52085.13