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Math Help - compound interest

  1. #1
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    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?
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  2. #2
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    What formula did they give you to plug into?

    Please remember to define the variables. Thank you!
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  3. #3
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    Quote Originally Posted by dorwei92 View Post
    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:

    A=P\left(1+\frac{r}{n}\right)^{nt}, 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
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  4. #4
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    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.
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  5. #5
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    Quote Originally Posted by dorwei92 View Post
    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.
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