Question

Joe is taking out a five year loan with a 7% interest rate compounded quarterly to buy a $4000 car. What will he have paid in total at the end of the five years?
1 point

Answer 1

Answer:

$5659.11

Step-by-step explanation:

We are given;

• Time of loan maturity is 5 years
• Rate of compound interest is 7% compounded quarterly
• Principal amount of the car is $4000

We are required to determine the total amount he paid at the end of 5 years..

The concept being tested is compound interest;

We are going to use the compound interest formula;

Amount = P(1+r/100)^n

Where P is the the principal amount

r is the rate of interest

n is the interest periods

In this case;

n = (5 × 4) = 20

r = 7 ÷ 4 = 1.75 ( as the money was compounded quarterly)

Thus;

Amount =$ 4000 ( 1 + 1.75)^20

            = $4000 (1.0175)^20

            = $5659.11

Therefore, the money that Joe will have paid at the end of 5 years is $5659.11