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2 February, 12:21

Suppose that a loan of $6000 is given at an interest rate of 9% compounded each year.

Assume that no payments are made on the loan.

Follow the instructions below. Do not do any rounding.

(a) Find the amount owed at the end of 1 year.

(b) Find the amount owed at the end of 2 years.

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  1. 2 February, 15:36
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    Answer: a) $6649

    b) $7128.6

    Step-by-step explanation:

    We would apply the formula for determining compound interest which is expressed as

    A = P (1 + r/n) ^nt

    Where

    A = total amount in the account at the end of t years

    r represents the interest rate.

    n represents the periodic interval at which it was compounded.

    P represents the principal or initial amount deposited

    From the information given,

    P = 6000

    r = 9% = 9/100 = 0.09

    n = 1 because it was compounded once in a year.

    a)

    t = 1 year

    Therefore,

    A = 6000 (1 + 0.09/1) ^1 * 1

    A = 6000 (1.09)

    A = $6649

    b) t = 2 years

    A = 6000 (1.09) ^2

    A = $7128.6
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