A loan of $1,500 is taken at a compound interest rate of 6% per annum. What will

₹0.0

Question: A loan of $1,500 is taken at a compound interest rate of 6% per annum. What will be the amount after 2 years?

Options:

Correct Answer: $1,686

Solution:

Amount = Principal * (1 + Rate)^Time = 1500 * (1 + 0.06)^2 = 1500 * 1.1236 = $1,686

A loan of $1,500 is taken at a compound interest rate of 6% per annum. What will be the amount after 2 years?

A loan of $1,500 is taken at a compound interest rate of 6% per annum. What will be the amount after 2 years?

Step 1: Identify the principal amount (the initial loan). In this case, it is $1,500.
Step 2: Identify the annual interest rate. Here, it is 6%, which can be written as 0.06 in decimal form.
Step 3: Identify the time period for which the loan is taken. In this case, it is 2 years.
Step 4: Use the compound interest formula: Amount = Principal * (1 + Rate)^Time.
Step 5: Substitute the values into the formula: Amount = 1500 * (1 + 0.06)^2.
Step 6: Calculate (1 + 0.06), which equals 1.06.
Step 7: Raise 1.06 to the power of 2: 1.06^2 = 1.1236.
Step 8: Multiply the principal amount by the result from Step 7: 1500 * 1.1236.
Step 9: Calculate the final amount: 1500 * 1.1236 = $1,686.

Compound Interest – Understanding how compound interest works, including the formula for calculating the future value of an investment or loan.