Thread: compound interest

1.You borrowed $10,000 to pay for your university school fees. The loan repayment is over 4 years with an interest rate of 5%. What is the remaining balance after 1 year?

2.You borrowed $10,000 to pay for your university school fees. The loan repayment is over 4 years with an interest rate of 5%. What is the remaining balance after 2 years?

What formula did they give you to plug into?

Please remember to define the variables. Thank you!

Originally Posted by dorwei92

1.You borrowed $10,000 to pay for your university school fees. The loan repayment is over 4 years with an interest rate of 5%. What is the remaining balance after 1 year?

2.You borrowed $10,000 to pay for your university school fees. The loan repayment is over 4 years with an interest rate of 5%. What is the remaining balance after 2 years?

Hi dorwei92,

Your post title is "Compound Interest", but you failed to tell us the number of times the interest is compounded per year.

Once you determine that, use the following formula:

, where

P = principal amount (the initial amount you borrow or deposit)
r = annual rate of interest (as a decimal)
t = number of years the amount is deposited or borrowed for.
A = amount of money accumulated after n years, including interest.
n = number of times the interest is compounded per year

The wording of the problem makes it sound like an amortization problem: Borrowed 10K, which is being repaid (monthly, quarterly?) at 5% over 4 years. What's the loan balance after 1 year of payments, and after 2 years of payments?

If that's in fact the case, Dorwei92, there's a formula for that, or you can run a fast amortization schedule (in Excel, say) and just read off the outstanding balances at any point along the way.

Originally Posted by dorwei92

1.You borrowed $10,000 to pay for your university school fees. The loan repayment is over 4 years with an interest rate of 5%. What is the remaining balance after 1 year?

2.You borrowed $10,000 to pay for your university school fees. The loan repayment is over 4 years with an interest rate of 5%. What is the remaining balance after 2 years?

Remaining balance after n payments:
future value of amount borrowed after n periods less future value of n payments

That's all we can give you: not enough info given.