Question

A bank made a farmer loan of $1,000 at 14% for 3 years compounded annually. Find the future value and the compound interest paid on the loan. Compare the compound interest with simple interest for the same period.

Answer: Future Value = $

Compound Interest = $

Simple Interest = $

Compound Interest is = $ more than simple interest.

Answer 1

Answer:

Principal =  $1,000

Rate of interest = 14% = 0.14

Time = 3 years

$A= P(1+r)^t$

A = Amount or future value

P = Principal

r = rate of interest in decimals

t = time

Substitute the values in the formula

$A= 1000(1+0.14)^3$

$A=1481.544$

Future Value is $1481.544

Compound interest = Amount - Principal = $1481.544- $1000 = $481.544

Formula of simple interest : $SI =\frac{P \times R \times T}{100}$

Substitute the values :

$SI =\frac{1000 \times 14 \times 3}{100}$

$SI =420$

So, Simple interest = $420

Compound interest - Simple interest

= $481.544- $420

= $61.544

So, Compound Interest is $61.544 more than simple interest.