Suppose that 2000 is loaned at a rate of 18% compounded monthly. Assuming that no payments are made,find the amount owed after 5 years. Do not round any Intermediate computations, and round your answer to the nearest cent.

Question

Answer 1

To problem, we will use the formula for compound interest:

where:-

is the amount owed after

years,-

is the principal amount (initial loan amount),-

is the annual interest rate (as a decimal),-

is the number of times the interest is compounded per year,-

is the time the money is invested or borrowed for, in years.Given:-

-

(since the interest is compounded monthly)-

yearsNow, plug these values into the formula:

First, calculate the monthly interest rate:

Next, add 1 to the monthly interest rate:

Then, raise this to the power of the total number of compounding periods (12 months/year * 5 years):

Using a calculator to find

:

Finally, multiply this result by the principal amount:

So, the amount owed after 5 years, rounded to the nearest cent, is:

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