The Pranav took the loan for one year and repay it with the amount of $2,100. Then the principal of the loan was $1,400 and the interest payment was $700, it is computed by the help of compound interest.
Compound interest is defined as Interest on interest, or compound interest. It is the adding of interest to the principal sum of a loan or deposit.
It is the outcome of reinvesting interest rather than paying it out, so that interest is received on the principal plus previously collected interest in the next period.
The formula of compound amount is:
[tex]\text{Amount (A)} = \text{Principal(P)}(1+ i)^n -1[/tex]
Where,
i = Interest Rate
n = Number of time Period
Computation of Principal and interest:
According to the given information,
A = $2,100
i = 5%
Now, apply the given values in the above formula:
[tex]\text{A} = \text{P}(1+ i)^n -1\\\\\$2,100 = \text{P}(1+ 5\%)^1 -1\\\\\text{P}=\$1,400[/tex]
Then, the interest payment would be:
[tex]\text{Interest} = \text{Amount-Principal}\\\\\text{Interest} = \$2,100-\$1,400\\\\\text{Interest} = \$700[/tex]
Learn more about interest, refer to:
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