An amount of is borrowed for 5 years at interest, compounded annually. Assuming that no payments are made, find the amount owed after 5
years.
Use the calculator provided and round your answer to the nearest dollar.

To find the amount owed after 5 years for a loan compounded annually, we can use the formula for compound interest:

Where:
is the amount of money accumulated after n years, including interest.
is the principal amount (the initial amount of money).
is the annual interest rate (decimal).
is the number of years the money is invested or borrowed.

In this case:

Plugging in the values:

Calculating:

Therefore, the amount owed after 5 years is approximately .

The world of compound interest can be quite fascinating! Did you know that Albert Einstein referred to compound interest as “the eighth wonder of the world”? It’s a powerful financial tool that can make your money grow exponentially over time, much like a snowball rolling down a hill.

If you ever find yourself in the world of loans and investing, keep an eye out for how compounding frequencies can change your returns! For instance, interest can compound monthly, quarterly, or even continuously. The more frequently it compounds, the more money you could end up with. So, the next time you’re looking at financial options, be sure to do the math and consider your compounding options!