Question

What is the total amount that First Consumer Bank will receive after lending Jane $7,000 for three years at an interest rate of 5 percent, compounded annually?

Answer 1

Given:
principal = 7,000
interest rate = 5% compounded annually
term = 3 years

A = P (1 + r/n)^nt

A = future amount to be received by First Consumer Bank
P = loan principal
r = rate
n = number of times compounded in a year
t = term

A = 7,000 ( 1 + 5%/1)^1x3
A = 7,000 (1.05)³
A = 7,000 (1.157625)
A = 8,103.375

First Consumer Bank will receive 8,103.375 from Jane after lending 7,000 for 3 years compounded annually at 5%.