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Edgar accumulated $5,000 in credit card debt. If the interest rate is 20% per year and he does not make any payments for 2 years, how much will he owe on this debt in 2 years with monthly compounding?
Round your answer to the nearest cent.
Do NOT round until you calculate the final answer

Correct answer: $7,434.57

Edgar Accumulated 5000 In Credit Card Debt If The Interest Rate Is 20 Per Year And He Does Not Make Any Payments For 2 Years How Much Will He Owe On This Debt I class=

Sagot :

saadatk

Answer:

amount owed = $7434.57

Step-by-step explanation:

To solve this problem, we have to use the following formula:

[tex]\boxed{A = P(1 + \frac{r}{n})^{nt}}[/tex],

where:

• A = final amount

• P = principal (initial) amount

• r = annual interest rate

• n = amount of times the interest is compounded per time period

• t = number of years the money is kept for

In this case, the principal amount, P = $5000 and the money is owed for two years, so t = 2. The annual interest rate, r = 0.20 (20% = [tex]\frac{20}{100}[/tex] = 0.2). The interest is compounded monthly, which means it is compounded 12 times per year. Therefore, n = 12.

Using the above information and formula, we can calculate the amount owed after 2 years:

[tex]A=P(1+\frac{r}{n})^{nt}[/tex]

   [tex]= 5000(1 + \frac{0.2}{12})^{12 \times 2}[/tex]

   [tex]=[/tex] $7434.57

Therefore, the amount Edgar owes after 2 years is $7434.57.

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