Question

11. Mr Lee bought a second hand car for

Answer 1

Answer :

Depends on the rate compound interest is accrued. See answers.

Step-by-step explanation:

We need the compound interest formula which is:

$A = P (1+\frac{r}{n} )^{nt}$

A =  final amount

P =  initial principal balance

r =  interest rate

n =  number of times interest applied per time period

t =  number of time periods elapsed

It doesn't say how frequently the interest is compounded, so we will do monthly, quarterly, and yearly.

MONTHLY

So we know the car costs $25,480 and he made a down payment of $10,000. By subtracting the down payment from the purchase price we find the loan amount.

$25,480 - $10,000 = $15,480

P = 15,480

r = 4.75% = .0475

n = 12  (12 months in a year)

t = 2  

Plug everything into the compound interest formula.

$A = P (1+\frac{r}{n} )^{nt}$

$A = 15480(1+\frac{.0475}{12})^{12*2}$

$A = 15480(1+\frac{.0475}{12})^{24}$

$A = 15480(1+.00396)^{24}$

$A = 15480(1.00396)^{24}$

$A = 15480*1.0992$

$A = 17016.14$

Mr. Lee paid $17,016.14 when the bill came due at 2 years with interest compounded monthly.

QUARTERLY

P = 15,480

r = 4.75% = .0475

n = 4  (4 quarters in a year)

t = 2  

$A = P (1+\frac{r}{n} )^{nt}$

$A = 15480(1+\frac{.0475}{4})^{4*2}$

$A = 15480(1+\frac{.0475}{4})^{8}$

$A = 15480(1+.0119})^{8}$

$A = 15480(1.0119)^{8}$

$A = 15480*1.099$

$A = 15480(1.099)$

$A = 17013.20$

Mr. Lee paid $17,013.20 when the bill came due at 2 years with interest compounded quarterly.

YEARLY

P = 15,480

r = 4.75% = .0475

n = 1  

t = 2  

$A = P (1+\frac{r}{n} )^{nt}$

$A = 15480(1+\frac{.0475}{1})^{1*2}$

$A = 15480(1+\frac{.0475}{12})^{2}$

$A = 15480(1+.0475})^{2}$

$A = 15480(1.0475)^{2}$

$A = 15480*1.0973$

$A = 16985.53$

Mr. Lee paid $16,985.53  when the bill came due at 2 years with interest compounded yearly.