Compound Interest Practice
Question 2
The total amount of money that we need to pay back after 3 years for a $3000 loan is $3993 . Find the compound interest rate of the loan.
Answer
Select and check your answer...
A. $2000
B. $3000
C. $4000
D. $5000
Check Answer
Step by Step Solution
Step 1
We start with the compound interest formula:
Where:
A
is the total amount of money (including interest) after
n
years (
$3993
)
P
is the principal
r
is the interest rate per year (
10
÷ 100 =
0.1
)
n
is the loan duration in year (
3
years).
Step 2
With
A=3993
,
r
=0.1
and
n
=3
, we can substitute these values into the compound interest formula as shown below:
Step 3
Now we have,
1.331
P
= 3993
. To find
P
, we need to remove
1.331
. To do so, we divide both sides of the equation with
1.331
. This is shown below:
Step 4
Finally, we have
P
= $3000
. Clearly, the answer is B.
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