If a person borrows $5000 at a rate of 8% per annum compounded annually, what wi

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Question: If a person borrows $5000 at a rate of 8% per annum compounded annually, what will be the amount after 2 years?

Options:

Correct Answer: $5832

Solution:

Amount = Principal * (1 + Rate)^Time = 5000 * (1 + 0.08)^2 = 5000 * 1.1664 = $5832.

If a person borrows $5000 at a rate of 8% per annum compounded annually, what will be the amount after 2 years?

If a person borrows $5000 at a rate of 8% per annum compounded annually, what will be the amount after 2 years?

Step 1: Identify the principal amount (the initial amount borrowed), which is $5000.
Step 2: Identify the annual interest rate, which is 8%. Convert this percentage to a decimal by dividing by 100, so 8% becomes 0.08.
Step 3: Identify the time period for which the money is borrowed, which is 2 years.
Step 4: Use the formula for compound interest: Amount = Principal * (1 + Rate)^Time.
Step 5: Substitute the values into the formula: Amount = 5000 * (1 + 0.08)^2.
Step 6: Calculate (1 + 0.08), which equals 1.08.
Step 7: Raise 1.08 to the power of 2: 1.08^2 = 1.1664.
Step 8: Multiply the principal amount by the result: 5000 * 1.1664 = 5832.
Step 9: The final amount after 2 years is $5832.

Compound Interest – Understanding how to calculate the future value of an investment or loan using the formula for compound interest.
Exponents – Applying exponentiation in the context of compounding over multiple periods.
Financial Literacy – Basic knowledge of interest rates and their impact on loans and investments.