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 2 years

Answer 1

To find the amount owed at the end of 2 years for a loan compounded annually, we use the formula:

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

Where:
P = principal amount (the initial loan amount)
r = annual interest rate (in decimal form)
n = number of times interest is compounded per year
t = number of years

For this question:
P = 6500
r = 7% = 0.07
n = 1 (since it is compounded annually)
t = 2

Substituting the values into the formula:

A = 6500(1 + 0.07/1)^(1*2)
= 6500*(1.07)^2
= 6500*1.1449
= $7446.85

So, the amount owed at the end of 2 years would be $7446.85.