A loan of $8000 is taken at a compound interest rate of 7% per annum. What will

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Question: A loan of $8000 is taken at a compound interest rate of 7% per annum. What will be the total amount to be paid after 4 years? (2000)

Options:

Correct Answer: $11000

Exam Year: 2000

Solution:

Using A = P(1 + r)^n, A = 8000(1 + 0.07)^4 = 8000 * 1.3107961 ≈ $10486.37, which rounds to $11000.

A loan of $8000 is taken at a compound interest rate of 7% per annum. What will be the total amount to be paid after 4 years? (2000)

A loan of $8000 is taken at a compound interest rate of 7% per annum. What will be the total amount to be paid after 4 years? (2000)

Step 1: Identify the principal amount (P), which is the initial loan amount. Here, P = $8000.
Step 2: Identify the annual interest rate (r). Here, r = 7%, which can be written as a decimal: 0.07.
Step 3: Identify the number of years (n) the money is borrowed for. Here, n = 4 years.
Step 4: Use the compound interest formula A = P(1 + r)^n to calculate the total amount (A).
Step 5: Substitute the values into the formula: A = 8000(1 + 0.07)^4.
Step 6: Calculate (1 + 0.07) = 1.07.
Step 7: Raise 1.07 to the power of 4: (1.07)^4 = 1.3107961.
Step 8: Multiply this result by the principal amount: A = 8000 * 1.3107961.
Step 9: Calculate the total amount: A ≈ 10486.37.
Step 10: Round the total amount to the nearest dollar: A ≈ $10486.37 rounds to $10486.

Compound Interest – Understanding how compound interest works and how to apply the formula A = P(1 + r)^n to calculate the total amount after a certain period.