You borrow $5000 at 7% per annum compounded semi-annually. You're to repay the money in 4 years. How much money will you owe?

Question

will you owe at the end of the 4 years?

Answer 1

Favourite answer

A(t) = A₀(1+r/n)^(nt)

where:

A(t) = amount owed at the end of t years

A₀ = original amount borrowed

r = annual rate of interest

n = number of compounding periods per year

Let:

A₀ = $5000

r = 0.07

n = 2 (semiannual is compounding twice per year)

t = 4 year term

A(4) = 5000(1+0.07/2)^(2*4)

 = 5000(1.035)^8

 = $6584.05 (rounded to the nearest cent)

Answer 2

A = P(1+r)ᴺ

A = 5000(1+0.07)⁴ = 6553.98

Compound Interest

Interest compounded annually

A = P(1+r)ᴺ

r is annual rate as a decimal

P is principle

N is number of years

A is present value