Question

Background Info: Tom finds a second personal loan option. This loan would also require him to repay the principal in one lump sum after three years.

Loan Option B

Principal: $9,000

Type of Interest: Compound Interest

Interest Rate: 8%

Rate of Accrual: Once per year

Use the formula for annual compound interest.

A = P (1 + StartFraction r Over n EndFraction)nt

Remember, A refers to the total amount owed.

Calculate the total amount that Tom would repay.

$10,337
$11,337
$12,337
$13,337

Answer 1

A = 9000(1 + 0.08)^3 = 9000(1.08)^3 = 9000(1.259712) ≈ 11,337.41, so Tom would repay $11,337 (rounded).