Claire wants to take out a small personal loan to renovate

Question:

Claire wants to take out a small personal loan to renovate her kitchen. She borrows $3,000. Her loan has an annual compound interest rate of 15%. The loan compounds once each year. If Claire does not make any payments, how much will she owe after ten years?

A. $12,136.67

C. $3,481.24

C. $6,090.90

D. $3,232.74

Answer:

A = P (1 + r/n) ^(n*t)

Where:

A = future value plus interest

P = principal amount

r = annual interest rate

n = number of times the interest is compounded per year

t = number of years

P = $3,000

r = 0.15

n = 1

t = 10 years

A = $3,000 * (1 + 0.15/1) ^ (1*10)

A = $3,000 * (1.15) ^10

A = $9,732.74

After 10 years, Claire will owe $9,732.74 if she defaults on payment. By considering the principal and interest, she will owe a total of $12,136.67.

Answer: A. $12,136.67