Paula borrowed $5000 from her brother Mario. She agreed to repay the money at the end of 5 years, giving Mario the same amount of interest that he would have received if the money had been invested at 2.25% compound quarterly

1 answer

To calculate the amount Paula would need to repay at the end of 5 years, we can use the compound interest formula:

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

where:

A = the amount owed at the end of the 5 years
P = the principal amount borrowed ($5000)
r = the annual interest rate (2.25%)
n = the number of times interest is compounded per year (4 for quarterly)
t = the number of years (5)

Plugging in the values, we get:

A = 5000(1 + 0.0225/4)^(4 x 5)
A = 5000(1.005625)^20
A = 5000(1.122078)
A = $5,610.39

Therefore, Paula would need to repay $5,610.39 to her brother Mario at the end of 5 years, including the interest of 2.25% compounded quarterly.