This is a tough one that I solved, I wanted to see how everyone else solves it.
1 answer:
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Answer :
Depends on the rate compound interest is accrued. See answers.
Step-by-step explanation:
We need the compound interest formula which is:
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.
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
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
Mr. Lee paid $16,985.53 when the bill came due at 2 years with interest compounded yearly.