Laura borrows $5,000 at 10.5% compound. How much does she owe after 4 months?

1 Answer
Alan N.
Aug 26, 2016

A. Laura owes $5,177.31 at 10.5% p.a. after 4 months.

Explanation:

Although the question does not state the period over which the 10.5% rate applies, it's reasonable to assume 1 year - normally written 10.5% p.a. (Per annum).

With that assumption, the rate per month =r/12 so the compound interest fomula compounded monthly reduces to:

A=P(1+r/12)^t

Where: P=$5,000, r=10.5% and t = 4 months
(In this example)

Hence: A= 5000(1+10.5/(100*12))^4

= 5000(1+0.00875)^4

= 5000xx1.0352 = 5177.31 (to 2 decimals)

Laura therefore owes $5,177.31 after 4 months.

Related questions
See all questions in Linear, Exponential, and Quadratic Models
Impact of this question
2058 views around the world
You can reuse this answer
Creative Commons License