We can use the formula for compound interest to calculate the amount that Mario would have at the end of 5 years if he invested $5000 at 2.25% compound quarterly:
A = P(1 + r/n)^(nt)
where A is the amount at the end of the investment period, P is the principal (initial amount invested), r is the annual interest rate (expressed as a decimal), n is the number of times per year that interest is compounded, and t is the number of years.
In this case, P = $5000, r = 0.0225 (2.25% expressed as a decimal), n = 4 (quarterly compounding), and t = 5.
A = 5000(1 + 0.0225/4)^(4*5)
A = 5000(1.005625)^20
A = $5863.27
So if Mario had invested $5000 at 2.25% compound quarterly, he would have had $5863.27 at the end of 5 years. Therefore, Paula should repay Mario $5863.27 to fulfill their agreement.
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.
How much money did Paula repay her brother?
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1 answer