Calculate the final loan amount of a $500 credit card loan with a 16% compound interest rate, compounded monthly, for a 1-year term.

Answer 1

To calculate the final loan amount, we can use the compound interest formula:

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

Where:
A = the final loan amount
P = the principal amount (initial loan or initial amount on deposit)
r = annual interest rate (as a decimal)
n = number of times that interest is compounded per year
t = number of years the money is invested or the loan term

Given:
P = $500
r = 16% = 0.16 (as a decimal)
n = 12 (compounded monthly)
t = 1 year

Using the values in the formula:

A = 500(1 + 0.16/12)^(12*1)
A ≈ 500(1 + 0.01333)^12
A ≈ 500(1.01333)^12
A ≈ 500(1.1762)
A ≈ $588.10

Therefore, the final loan amount after one year will be approximately $588.10.