Question

An amount of $27,000 is borrowed for 7 years at 6.5% interest, compounded annually. If the loan is paid in full at the end of the period, how much must be paid back? Round your answer to the nearest dollar

Answer 1

$41958 must be paid back

Explanation:

AMount borrowed = P = $27000

time = t= 7 years

n = compounded annually

n = 1

rate = 6.5% = 0.065

Amount to be paid back at the end of the period = FV

We will be apply the compound interest formula:

$FV\text{ = P(1 +}\frac{r}{n})^{nt}$$\begin{gathered} FV\text{ = 27000(1 + }\frac{0.065}{1})^{1\times7} \\ FV=27000(1.065)^7 \\ FV\text{ = }41957.6367 \end{gathered}$

To the nearest dollar, $41958 must be paid back