Suppose that a loan of $6,500 is given at an interest rate of 7% compounded each year assume that no payments are made on the loan find the amount owed at the end of one year

1 answer

The formula to calculate the amount owed at the end of the year for a loan with compound interest and no payments made is a = P(1 + r/n)^(nt). In this case, as the loan is compounded each year, n = 1.

Where:
P = Principal amount (the initial amount of money),
r = annual interest rate (in decimal),
t = time in years,
n = number of times the interest is compounded in a year.

So in our case:
P = $6,500
r = 7/100 = 0.07
t = 1 year
n = 1 (compounded annually)

Plug these values into the formula:

a = $6,500(1 + 0.07/1)^(1*1)
a = $6,950

So, by the end of one year, $6,950 would be owed.